GBP/USD reclaims 1.2000 as mood improves despite Fed commentary

• Federal Reserve’s hawkish commentary failed to underpin the US Dollar.
• Improvement in risk appetite linked to China’s Covid-19 outbreak bolstered the British Pound.
• US Conference Board Consumer Confidence fell to a four-month low, weighed on the USD.

The GBP/USD advances as the North American session begins, amid a mixed sentiment, due to US Federal Reserve (FED) officials’ hawkish comments and no escalation in China’s riot linked to the recent Covid-19 outbreak. Data from the United States (US) was largely ignored by market players, with most focused on Wednesday’s crowded docket and Fed Chairman Jerome Powell’s speech. At the time of writing, the GBP/USD is trading at 1.2010.

Market mood remains positive, weighing on the USD

US equities wavered as Wall Street opened. On Monday, the St. Louis Fed President James Bullard said the Fed has “a ways to go to get to restrictive policy,” adding that the first 250 bps was to get rates neutral. He emphasized that rates need to be at around 5% to 7% through 2023 and 2024. Echoing some of his comments was the New York Fed John Williams, who said that the strong economy in the US “suggests a modestly higher path for policy relative to September. Not a massive change, but somewhat higher.” Meanwhile, money market futures have priced in a 50 bps hike in December, with odds of a 75 jumbo increase at 15%.

Aside from this, the Covid-19 outbreak in China has not escalated as initially thought, as global equities remained mixed but tilted to the upside. According to the Wall Street Journal, the National Health Commission urged local governments to avoid unnecessary and lengthy lockdowns. Chinese health officials said the Omicron variant is less severe while committed to vaccinating elder people aged 80 or older.

Meanwhile, the US Dollar Index (DXY), a measure that tracks the greenback’s value against a basket of six currencies, is losing 0.26%, down at 106.393, a tailwind for the GBP/USD pair. Of note, US Treasury yields are rising, even though the buck remains defensive.

Data-wise, the US economic calendar featured the Conference Board (CB) Consumer Confidence, which decreased to 100.2 to a 4-month low. Lynn Franco, senior director of economic indicators at the Conference Board, said, “The combination of inflation and interest rate hikes will continue to pose challenges to confidence and economic growth into early 2023.”

As of writing, the Bank of England (BoE) Governor Andrew Bailey said that the “scale of QE hasn’t blurred the distinction between monetary and fiscal policy.”

What to watch

The UK economic calendar will feature the Bank of England Huw Pill crossing wires. The US docket would be busy with the release of ADP figures, GDP, the Goods Trade Balance, Wholesales Inventories, the Chicago PMI, JOLTs report, Pending Home Sales, and Fed speaking, led by the Federal Reserve Chairman Jerome Powell.

GBP/USD Key Technical Levels