GBP/USD continues its sideways performance below 1.2500 as USD Index defends downside

• GBP/USD is showing a lacklustre performance below 1.2500 amid the absence of a critical trigger.
• Market sentiment is positive as fears of catastrophic US default have trimmed sharply.
• UK Hunt’s promise of bringing down higher taxes to reduce pressure of higher inflation households could induce retail demand.

The GBP/USD pair is displaying a back-and-forth action below the psychological resistance of 1.2500 in the Tokyo session. The Cable is failing to deliver decisive action amid the absence of critical triggers. The USD Index is making efforts for defending its downside near 1.2480, however, the downside seems favoured as the White House has agreed to raise US borrowing cap as the cost of the President’s spending initiatives.

S&P500 futures are showing nominal losses in Asia after a bullish Wednesday. Market sentiment is positive as fears of catastrophic US default have trimmed sharply. The US Dollar Index (DXY) is juggling in a narrow range around 102.81. A further positive development for the approval of the US debt-ceiling raise would weigh more pressure on the USD Index as a higher flush of US Dollars in the economy would trim its appeal.

Also, rising expectations for a pause in the interest rate-hiking spell by the Federal Reserve (Fed) are exerting pressure on the USD index. However, the current interest rate at 5.00-5.25% will stay by the end of 2023, according to a poll by Reuters.

Meanwhile, Bank of England (BoE) policymakers are still under pressure of bringing down the stubborn United Kingdom’s inflation. BoE Governor Andre Bailey cited on Wednesday that the tightness in the UK labour market is easing at a slower pace than we expected in February. This would leak out some heat from the current UK’s double-digit inflation.

Contrary to that, UK Finance Minister Jeremy Hunt’s promise of bringing down higher taxes to reduce the pressure of higher inflation households could induce retail demand.