GBP/USD MARCHES TOWARDS 1.2500 AS USD INDEX REFRESHES DAY’S LOW

GBP/USD is approaching the 1.2500 resistance as the USD Index has dropped further.

The street is majorly divided about Federal Reserve’s interest rate policy for June.

The absence of the UK’s inflation softening signs indicates that BoE’s current interest rates are far from over.

The GBP/USD pair is approaching the psychological resistance of 1.2500 in the European session. The Cable has been awarded strength as the US Dollar Index (DXY) has extended its downside journey. The USD Index has come under intense pressure as the street is majorly divided about Federal Reserve’s (Fed) interest rate policy for June.

S&P500 futures have posted nominal losses in Europe as an absence of potential triggers has made investors anxious. Next week is going to be full of economic events as the United States Consumer Price Index (CPI) release will be followed by an interest rate decision by the Federal Reserve (Fed).

The USD Index has printed a fresh day's low at 103.77. For the past two trading sessions, the USD Index is consolidating in a range of 103.67-104.36 amid the preparation of crucial economic events. Contrary, the demand for US government bonds has also remained weak, which has pushed the 10-year US Treasury yields above 3.82%.

Meanwhile, the street is puzzled whether to bank upon a commentary by Fed chair Jerome Powell that further rate hikes are less certain due to tight credit conditions or keep strong labor market conditions the main source.

On the Pound Sterling front, investors will keep focus on next week’s Employment data. Economists at ING said second or third-tier United Kingdom data has been quite mixed recently, but the main event on the data front will be next Tuesday's release of jobs and wages data. We see that as a negative event risk for the Sterling, where wage growth could continue to slow and take some of the steam out of the 100 bps Bank of England tightening expectations still priced in by money markets.

The street believes that the BoE’s current interest rates are far from peaking amid an absence of signs of inflation softening. Further operations by BoE Governor Andrew Bailey will be important to watch as investors are excited to see how the showman would keep the promise of halving inflation by year-end made by UK PM Rishi Sunak.