GBP/USD bulls attack 1.2100 as Fed Minutes loom, Brexit, UK wage talks eyed as well

• GBP/USD rose the most in over a week as UK business activity data renew hawkish BoE concerns.
• A pause in UK’s nurse strikes also strengthen the upside bias for the Cable.
• Brexit fears, US Dollar strength keeps bears hopeful.
• FOMC Minutes eyed for clear directions amid hawkish Fed bias, Brexit updates and wage talks between British union, government eyed.

GBP/USD grinds higher past 1.2100, mildly bid around 1.2115 during the initial hours of Wednesday’s Asian trading, as upbeat UK fundamentals keep Cable buyers hopeful ahead of the key Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes.

That said, strong UK data and hopes of overcoming multi-day-old nurse strikes in Britain seemed to have underpinned the GBP/USD pair’s latest run-up. However, upbeat US data and hawkish Fed talks also propelled the US Dollar and challenged the Cable buyers prior to the important Fed Minutes. The Brexit woes join the pre-event anxiety to act as additional filter towards the north.

As per the preliminary readings of the UK S&P Global/CIPS data for February, the Manufacturing PMI rose to 49.2 versus 46.8 expected and 47.0 prior while Services PMI jumped to a seven-month high of 53.3 compared to 48.3 market forecasts and 48.7 previous readings.

Following the upbeat data, Reuters quotes a survey of economists stating that the strength of the survey made it more likely that the BoE - grappling with an inflation rate still above 10% - would raise interest rates to 4.25% in March, despite further signs of easing price pressures in the PMI.

Elsewhere, Reuters reported that nurses will pause strike action in England and begin talks with the British government on Wednesday in a long-running dispute over pay and conditions, the Royal College of Nursing (RCN) said on Tuesday.

Alternatively, Brexit woes loom as the Eurosceptic Conservatives challenge UK Prime Minister’s talks with the European Union (EU) over the Northern Ireland (NI) border issue. The leader of Northern Ireland's largest unionist party (Jeffrey Donaldson, leader of the Democratic Unionist Party) said on Tuesday there was still work to be done to find a resolution to a dispute between Britain and the European Union over their post-Brexit trading arrangements with the province, per Reuters.

On the other hand, the business activity in the United States matched the likes of previously published US inflation numbers, Retail Sales and employment data and boosted the US Dollar.

Following the data, the FEDWATCH tool signals that the money market participants see the benchmark level peaking at 5.3% in July, and staying near those levels throughout the year, versus 5.10% expected by the US Federal Reserve (Fed).

Other than the Fed bets, the upbeat US data also propelled the US Treasury bond yields as the benchmark 10-year bond coupon refreshed a three-month high near 3.95% while the two-year counterpart also jumped to the highest levels since early November 2022, to 4.73% at latest.

As a result, the US Dollar Index (DXY) snapped a two-day downtrend to regain 104.00 on Tuesday, grinding higher around 104.20 by the press time.

Apart from the aforementioned catalysts, the challenges to risk appetite emanating from Russia and China also underpin the US Dollar and test the GBP/USD prices ahead o the Fed Minutes.

To sum up, Fed Minutes should be eyed for policy pivot talks considering the latest cautiously optimistic tone of the policymakers.

Technical analysis

Although the 200-DMA puts a floor under the GBP/USD price near 1.1935, a convergence of the 21-DMA and a three-week-old descending resistance line, close to 1.2165 at the latest, restricts short-term upside of the Cable pair.