Title: GBP/USD aims to overstep 1.2000 as DXY sees more pain, Fed policy in focus

July 25, 2022 12:05 AM ET

By: AnalysisWatch

The GBP/USD pair has recovered half of its intraday losses and aims to regain the psychological resistance of 1.2000. The currency pair has entered a corrective phase after reaching a high of 1.2064 on Friday. On a broader level, the asset is showing choppy movements as the US Dollar Index (DXY) completed a sideways movement last week.

In recent months, the uptrend in the DXY has been supported by expectations of higher interest rates and positive economic data. The option of a 1% rate hike by the Federal Reserve (Fed) is off the table for now.

However, investors are still betting on a 75-basis point (bps) rate hike on Wednesday.

While U.S. economic data suggests a bumpy ride, Wall Street is reporting generally weak gains. In addition, Google has halted its hiring process, and Ford plans to lay off 8,000 employees. This could lead to a slump in job creation and eventually in the overall labor market, which may not be stable enough to support the Fed raising interest rates without hesitation.

In the UK, the pound bulls weakened after the release of poor retail sales data. The economic data came in at -5.8%, lower than the consensus forecast of -5.3% and the previous release of 4.7%. It is worth noting that rising energy bills are already driving retail sales higher. Galloping inflation should have pushed the retail sales estimate higher. However, the lower consensus suggests that aggregate demand is so low that even price pressures are unable to lift it above its prior release.