GBP/USD is looking to move activity above 1.2200 amid improving investor risk appetite. The US Dollar will see an extended decline after a policy change from the FOMC starting in Q1CY2023. Concerns about recession due to the Fed’s higher interest rate forecasts sidelined the S&P500.
GBP/USD is aiming to move its bid profile above the 1.2200 round level hurdle at the start of the Asian session. Earlier, Cable posted a firmer rally after falling near 1.2100 on Wednesday. Reactive buying action from market participants pushed Cable significantly higher. Investors shrugged off data-inspired volatility in the United States and cheered the easing of Covid-19 lockdown measures in China.
The dramatic rally in the risk appetite chart ended a two-day rally in the US Dollar Index (DXY). The USD Index felt extreme selling pressure as it attempted to recover critical resistance at 106.00. The S&P500 remained sideways but signs of a rebound are available. Meanwhile, 10-year US Treasury yields saw a sell-off and fell to nearly 3.42%.
Concerns over expected higher borrowing costs due to renewed strength in the U.S. economy, driven by stronger nonfarm payrolls (NFP) data and solid demand for the services sector, are confusing Investors. Market participants are unsure whether to cheer for the strength of the US economy or worry about rising recession expectations due to higher interest rate spikes from Federal Reserve (Fed) policymakers.
Meanwhile, economists at the National Bank of Canada believe the greenback could recover some ground in the short term before suffering a prolonged decline next year. But in the long term, a prolonged decline phase will take place after a policy change by the Federal Open Market Committee (FOMC) in the first quarter of CY2023.
Going forward, investors will keep an eye on the five-year U.S. consumer inflation expectations, which will be released on Friday. Long-term inflation expectations are still anchored, as the Fed has already vigorously accelerated its interest rates.