GBP/USD aims to shift auction above 1.2500 as USD Index eyes more downside

• GBP/USD is gathering strength to shift its auction above $1.2500 amid a sell-off in the USD Index.
• The Fed might go for a steady stance on the interest rate guidance to recede fears of a US economic slowdown.
• Further quantitative tightening is expected from the BoE as UK inflation is stuck in double-digit territory.

The GBP/USD pair has reclaimed the psychological resistance of 1.2500 in the Asian session. The Cable has shown a stellar upside move amid weakness in the US Dollar Index (DXY). The USD Index has refreshed its weekly low at 101.20 and more downside is in pipeline as investors are anticipating that the Federal Reserve (Fed) will conclude its quantitative tightening program after a 25 basis point (bp) interest rate hike in May.

S&P500 futures are showing marginal losses in the Asian session after a moderately positive Monday, portraying a decline in the risk appetite of investors. This week, the 500-US stocks basket is expected to show sheer volatility as big technology boys will report first-quarter results of CY2023. Meta Platforms, Google, and Microsoft will present their quarterly performance and revenue guidance, which will keep investors on the tenterhooks.

The impact of the battered USD Index can also be seen in US Treasury yields. The return offered on 10-year US Treasury bonds has dropped to near 3.48%.

This week, the USD Index is expected to remain in action ahead of the preliminary Gross Domestic Product (GDP) data, which is scheduled for Thursday. Annualized (Q1) GDP is expected to contract to 2.0% vs. the former release of 2.6%. A decline in GDP numbers would fuel fears of a slowdown in the United States economy. This may also force the Fed to go for a steady stance on interest rate guidance.

On the United Kingdom front, odds for a hawkish Bank of England (BoE) monetary policy are rising as United Kingdom’s inflation seems sticky with a double-digit figure amid a shortage of labor and galloping food inflation. UK’s food inflation has already roared to a 45-year high at 19.1% and is showing no evidence of softening yet. BoE Governor Andrew Bailey may look for raising rates further by 25 bps to 4.5%.