GBP/USD declines towards 1.1100 on hawkish Fed bets, US NFP in focus

• GBP/USD is expected to drag towards 1.1100 on escalating hawkish Fed bets.
• Fed policymaker sees a collective rate hike by 125 bps in the remaining 2022.
• Investors have started considering the possibility of cable parity this year.

The GBP/USD pair has delivered a downside break of the consolidation formed in a narrow range of 1.1145-1.1173 in the Tokyo session. The cable is hovering around Thursday’s low at 1.1112 and is expected to decline toward the round-level cushion of 111.00. Risk-profile is awaiting fresh cues from S&P500 as the index is building a cushion after a downside move. It is difficult to tag now whether the inventory adjustment process will be an accumulation or distribution.

Meanwhile, collective action of South Korea and the US to respond against North Korea’s provocations through joint drills with US aircraft carrier is advocating for continuation of risk-aversion. The US dollar index (DXY) is gathering momentum to cross the intermediate hurdle of 112.30 amid an improvement in safe-haven appeal. Apart from that, hawkish commentary from Federal Reserve (Fed) policymakers is strengthening the DXY.

Chicago Fed Bank President Charles L. Evans believes that the central bank will reach to targeted rate of 4.5-4.75% by the spring of 2023. And, the central bank will step up the interest rates by 125 basis points (bps) in the remaining two monetary policy meetings.

However, the US Nonfarm Payrolls (NFP) data will remain in spotlight. Interest rates have been advancing by the Fed and the labor market is extremely tight. This has resulted into a decline in the projections for the payroll data to 250k from the prior release of 315k.

On the UK front, poor economic fundamentals have forced the institutional investors to consider the odds of cable parity this year. The rollback of tax cuts by the UK administration has safeguarded the sterling economy to get exposed against highest borrowing structure since 1972. Meanwhile, Fitch Ratings has affirmed a AA- rating to BOE sovereign, outlook revised to Negative from Stable.