GBP/USD looks vulnerable above 1.2000 despite hawkish BoE bets mount

• GBP/USD is struggling to keep its feet above 1.2000 as geopolitical tensions amid Russia and Ukraine are escalating.
• China’s dubious gestures towards the Russia-Ukraine war are dampening the market mood.
• the shortage of labor and absence of signs of easing labor cost index are clocking for more rates by the BoE.

The GBP/USD pair is displaying topsy-turvy moves around 1.2020 in the early European session. The Cable is looking weak despite a recovery from the psychological support of 1.2000. Mounting hawkish Bank of England (BoE) bets are failing to provide a cushion to the Pound Sterling.

The US Dollar Index (DXY) is awaiting the release of the United States Personal Consumption Expenditure (PCE) Price Index for a decisive move. At the press time, the USD Index is grinding in a narrow range around 104.20. Investors should brace for a surprise from the Federal Reserve (Fed)’s preferred inflation tool as labor market data and January’s Retail Sales have already cleared that United States inflation is quite sticky and will be tamed by hiking rates further and keeping them for a longer period.

S&P500 futures are showing a subdued performance as investors are refraining from building positions amid escalating geopolitical tensions. The Chinese economy has failed to infuse confidence in the Western allies that the government is supporting a truce between Russia and Ukraine despite releasing the 12-point peace plan. This indicates that investors should be precautionary until clarity over the circumstances.

As investors have digested the fears of a recession in the United States due to the expectations for more rates by the Fed, the demand for the US government bonds has rebounded. This has led to a decline in the 10-year US Treasury yields to 3.87%.

On the United Kingdom front, the need for further policy restriction is deepening as the economy has managed to dodge the recession in CY2022 and now the economic outlook is improving again due to a revival in consumer spending. Shortage of labor and absence of signs of easing labor cost index looks sufficient to underpin inflationary pressures further.

Bank of England (BoE) policymaker Catherine Mann dictated on Thursday that the central bank should not consider the rate peak for now as the inflation figure is still in double-digits despite pushing rates to 4%. BoE policymaker is worried about the extended persistence of inflation and sees the need for more tightening and believes that a pivot is not imminent.