GBP/USD sees cushion around 1.2180 amid subdued DXY, BOE policy in focus

• GBP/USD is likely to find support around 1.2180 as DXY is expected to drop further.
• The BOE is expected to increase interest rates by 5 basis points (bps) this week.
• An underperformance is expected from the US NFP as US techs have halted their recruitment process.

The GBP/USD pair has witnessed a minor pullback after hitting a high of 1.2198 in the Asian session. The asset is likely to find a cushion of around 1.2180 as investors are expecting one more rate hike by the Bank of England (BOE) this week.

The BOE is likely to elevate its interest rates by 25 basis points (bps) as the downbeat UK economic situation is not supporting the BOE to go all in and elevate interest rates with a higher rate extent unhesitatingly. The major catalysts which are restricting the BOE to elevate interest rates is the lower Average Hourly Earnings data.

Price pressures are soaring in the UK economy. The inflation rate has reached to 9.4% and has not displayed any exhaustion signals yet. Therefore, the market participants are expecting that the inflation rate could punch the two-digit figure. In times when inflation is soaring, earnings by the households have tumbled and more rate hikes could trim job opportunities significantly.

Meanwhile, the US dollar index (DXY) is likely to extend losses if the asset drops below Monday’s low at 105.63. This week, the release of the US Nonfarm Payrolls (NFP) holds significant importance. As per the market consensus, the US economy has added 250K jobs in the labor market against the prior release of 372k. A downbeat performance is expected from the economic data as various US tech companies have halted their recruitment process. Also, the Unemployment Rate is seen stable at 3.6%.