GBP/USD corrects to near 1.2250 as USD Index attempts recovery, Fed policy buzz

• GBP/USD has shown a mild correction after failing to extend recovery above the 1.2280 resistance.
• The USD Index has printed a day high of 103.43 as pre-Fed anxiety has kicked in.
• BoE might continue its rate hiking spell despite global banking issues and declining inflation.

The GBP/USD pair has displayed a corrective move to near 1.2250 in the Asian session. The corrective move in the Cable has been witnessed as the US Dollar Index (DXY) has shown a recovery move. The USD Index has printed an intraday high of 103.43 as pre-Federal Reserve (Fed) anxiety is expected to play ahead. However, the upside bias for Cable is still favored as odds for a steady monetary policy by the Fed are gaining the limelight.

S&P500 futures are holding nominal gains added in the Asian session as investors are expecting that Fed chair Jerome Powell would keep the focus on the deepening stress in the United States after the collapse of three mid-size commercial banks in just one week and sidelined the topic of stubborn inflation.

Returns offered on US government bonds are withholding gains as the liquidity influx by financial institutions to support the First Republic Bank could propel inflationary pressures. The 10-year US Treasury yields have scaled to near 3.5%.

On the United Kingdom front, a power-pack action is expected from the Pound Sterling this week amid the monetary policy announcement by the Bank of England (BoE) and the UK’s inflation data.

Wednesday’s Consumer Price Index (CPI) will be followed by Thursday’s BoE interest rate decision. As per the estimates, the annual headline CPI is expected to trim to 9.8% from the former release of 10.1%. While the core CPI that excludes oil and food prices would remain steady at 5.8%.

BoE Governor Andrew Bailey might continue hiking rates despite a decline in the inflationary pressures and potential banking crisis as the scale of CPI is extremely high. According to the consensus, the BoE would hike rates further by 25 basis points (bps) to 4.25%.