GBP/USD bulls step in at key support in the face of USD headwinds

• GBP/USD bulls are attempting to hold the key support areas on the charts
• However, the greenback remains in the hands of the bears ahead of key central bank meetings.

GBP/USD bulls are attempting a correction from an important support area near the midpoint of the 1.1400 area, with the price recovering from a low of 1.1462 and now testing the bear's commitments at 1.1500. The pound, however, is still losing some .03% on the day as the US dollar edges up following data showing US Retail Sales unexpectedly rebounded in August. 

Retail Sales increased 0.3% last month and the US dollar has held near recent peaks, supported by the view that the Federal Reserve will keep tightening policy aggressively. The data of late, including this week's surprise increase in consumer prices in August, has reinforced the bullish case for the greenback as investors price in a third consecutive 75-basis-point rate hike next Wednesday.

Meanwhile, the Bank of England is also expected to hike by another 50bp on Thursday 22 September, but it remains a close call between 50bp and 75bp due to the rising recession risk. Analysts at Danske Bank argue that the BoE has had a tendency to surprise to the dovish side at recent meetings. ''Additionally, BoE was the first G10 central bank to forecast a recession by Q4 2022 at its last meeting, while using a far more dovish market pricing as policy input than what is currently priced.''

The analysts expect 50bp hikes in September, November and December followed by a final 25bp hike in February 2023. ''The endpoint is thus lifted to 3.25% (from 2.50%). We see the possibility for further hikes in 2023, if we see underlying inflation pressures to prove persistent.''

Politically, the analysts cite the newly elected Prime Minister Liz Truss; plans to add upside to inflation down the road with inflation possibly proving to be more persistent. ''This could highlight the need for further hikes in 2023, yet amid the deficit funding uncertainty we still lean towards 50bp next week.''