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16 Mar 2023

GBP/USD reclaims 1.2100 amid modest USD weakness, upside potential seems limited

  • GBP/USD regains positive traction and snaps a two-day losing streak to the weekly low.
  • A modest recovery in the risk sentiment undermines the USD and extends some support.
  • Fed-BoE policy divergence to cap gains amid fears of a full-blown global banking crisis.

The GBP/USD pair attracts fresh buyers near the 1.2040-1.2035 region on Thursday and recovers further from the weekly low, around the 1.2000 psychological mark touched the previous day. Spot prices climb beyond the 1.2100 mark, or a fresh daily top during the early part of the European session and, for now, seems to have snapped a two-day losing streak.

A generally positive tone around the equity markets prompts some selling around the safe-haven US Dollar and turns out to be a key factor pushing the GBP/USD pair higher. The slight improvement in the global risk sentiment comes after the troubled Swiss bank - Credit Suisse - announced that it will exercise an option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. Furthermore, Saudi National Bank's Chairman, Ammar Al Khudairy, reportedly said that panic surrounding Credit Suisse is unwarranted and that regulators are ready to plug holes when they appear.

The muted market reaction, however, suggests that investors remain worried about a broader systemic crisis, especially after last week's collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. This might keep a lid on any optimism, which, along with the prospects for further policy tightening by the Federal Reserve, should act as a tailwind for the Greenback and cap gains for the GBP/USD pair. The US CPI report released on Tuesday indicated that inflation isn't coming down quite as fast as hoped and revived bets for at least a 25 bps Fed rate hike move at the March policy meeting.

In contrast, the markets are now pricing in a 50% chance that the Bank of England (BoE) will pause its rate-hiking cycle next week amid fresh turmoil in the European banking sector. This, in turn, warrants caution before placing aggressive bullish bets around the GBP/USD pair and positioning for a further intraday appreciating move. Traders now look to the US economic docket, featuring the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, Building Permits and Housing Starts. Apart from this, the ECB-inspired volatility could provide some impetus to the GBP/USD pair.

Technical levels to watch

 

Mar 16, 2023

ECB Preview: Four scenarios and their implications for EUR/USD – TDS

Economists at TD Securities discuss the European Central Bank (ECB) interest rate decision and their implications for the EUR/USD pair. Hawkish 50 bps
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Mar 16, 2023

NZD/USD should remain side-lined in the short term – UOB

In the view of Markets Strategist at UOB Group Quek Ser Leang and Senior FX Strategist Peter Chia see NZD/USD navigating between 0.6105 and 0.6265 in
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