GBP/USD bulls step back in ahead of Fed following significant sell-off

• GBP/USD bulls move in during the midday NY session. 
• The price is meeting a key level of 4-hour resistance. 
• Eyes will move from gas woes in Europe to the Fed for the next catalyst. 

At 1.2031, GBP/USD is lower on the day by some 0.16% at the time of writing, recoupling the losses from the 1.1963 lows scored at the start of the New York session. The pair has been pressured from a high of 1.2090 amid a risk-off tone stemming from both sides of the Atlantic.

In the US, risk appetite was reigned in on Wall Street as the retail sector is weighed by profit warnings by Walmart which is re-energising the fears of an inflation-led recession in the US economy. However, US government bonds rose with the dollar as the International Monetary Fund sliced its outlook for global growth this year.

Across the pond, equally supportive of the safe haven US dollar in wake of the most recent Kremlin-related commentary, the euro has been pressured. European Union countries have approved a weakened emergency plan to curb their gas demand as they brace for further Russian reductions in supply.

Fed eyed as the next catalyst

Meanwhile, central bank reaction functions will come back to the fore as the Federal Reserve is widely expected to raise interest rates by 75 basis points on Wednesday. However, investors will be keeping a close eye on the central banks' forward guidance as it grapples with high inflation and the potential for a recession. With that being said, like most other G10 central banks, both Fed and the Bank of England have made it clear that forcing down inflation is its primary goal, even at the cost of growth. 

The BoE said in June it was ready to act forcefully if needed and Governor Andrew Bailey has said a half percentage-point increase in interest rates is now on the table, as well as the typical quarter-point move. The MPC's next scheduled announcement on August 4. Nevertheless, according to a Reuters poll, 54% of respondents anticipate only a 25 basis point hike while 45% think we will see a 50 bps hike. This is in contrast to the prior hawkish sentiment being priced into the pound by markets.

GBP/USD technical analysis

As per the prior analysis, GBP/USD Price Analysis: Bulls set a medium-term target in the 1.22 area, the price has fallen to mitigate the imbalance identified in the 4-hour time frame but has since found its footing. A break of 1.2090 will now be needed to see the price continue on its northerly trajectory. First, the bulls need to clear the neckline of the 4-hour M-formation: