GBP/USD recaptures 1.3400 despite cautious mood, USD strength

• GBP/USD is heading higher amid a slightly less hawkish stance in Powell’s testimony.
• The DXY is defending the bids ahead of the Russia-Ukraine peace talks.
• The odds of a 50 bps interest rate hike have trimmed significantly.

The GBP/USD pair has observed a firmer rally from Wednesday’s low at 1.3272 as Federal Reserve (Fed) chair Jerome Powell’s Wednesday testimony indicated a slightly less hawkish stance for March’s monetary policy rather than an aggressive one.

Earlier, the risk-perceived assets were not performing against the greenback as the market participants were estimating that the Fed would resort to a 50 basis points (bps) interest rate hike to combat the soaring inflation.

There is no denying the fact that handling 40-year high inflation is not a cakewalk and to curb a Consumer Price Index (CPI) level of 7.5%, the Fed would require plenty of contraction policies and deployment of various quantitative tools to squeeze the liquidity.  

Moreover, the ongoing Russia-Ukraine war has forced the market participants to stick with the risk-aversion theme amid galloping uncertainty in the financial markets.

The investors have cheered the advocacy of a 25 bps interest rate hike in Powell’s testimony, which is why the pound has been performing strongly against the greenback in the Asian session and is likely to continue its performance in the European session too.

Meanwhile, the US dollar index (DXY) is oscillating in a narrow range of 97.46-97.58 on Thursday as investors are waiting for the Russia-Ukraine peace talks, which may guide the investors either to continue shifting funds in the sterling or roll back to the greenback.