- GBP/USD is aiming to build a cushion around 1.2120 as the US Dollar is displaying chaotic moves.
- Phenomenal strength in the United States economy is not favorable for Fed’s current monetary policy.
- UK’s food supply crisis is expected to accelerate already higher food inflation further.
The GBP/USD pair has witnessed a marginal correction after picking demand near the crucial support of 1.2120 in the Asian session. The Cable has attempted a recovery backed by volatile moves shown by the US Dollar Index (DXY). It would be early to cite that the risk aversion theme has faded amid an absence of a positive trigger. Therefore, the Cable’s recovery moves need to pass more filters ahead.
The USD Index is displaying topsy-turvy moves after failing to extend gains above the critical hurdle of 105.70. Meanwhile, S&P500 futures have also picked up minimal demand after remaining lackluster in early Tokyo. The United States equities witnessed a sharp sell-off consecutively for two trading sessions as expectations for a higher interest rate peak by the Federal Reserve (Fed) have renewed fears of recession. The 10-year US Treasury yields are hovering around 3.55%.
The synergy created by upbeat US Nonfarm Payrolls (NFP) and robust service sector demand has triggered expectations of positive de-anchoring in short-term inflation expectations. Phenomenal strength in the United States economy is not favorable for Fed’s current monetary policy. Fed chair Jerome Powell is putting efforts into achieving price stability and solid economic prospects to propel inflationary pressures.
This has fuelled expectations for a higher interest rate peak to contain runaway inflation. However, the odds of a slowdown in the current pace for the interest rate hike have not faded yet.
On the United Kingdom front, the soaring food supply crisis has triggered expectations of higher food inflation. Earlier, the British Retail Consortium (BRC) reported UK food price inflation hit a new high of 12.4%. As the food supply crisis has soared led by a shortage of labor and sky-rocketing input costs, food inflation will receive more strength and may accelerate headline inflation ahead.