August 22, 2022 12:01 AM ET
By: AnalysisWatch
The GBP/USD pair rebounded strongly after the pound's declines defended the critical 1.1800 support in the Tokyo session. Cable is heading for the critical 1.1850 level and is expected to break through it as the US Dollar Index (DXY) faces the heat of exhaustion after a blistering recovery. The asset is on the verge of breaking out of the consolidation formed in a chartered territory of 1.1805 to 1.1834.
For a while, the pound bulls violated the continuation of the three-day losing streak by not giving up Friday's low of 1.1791. DXY posted a slight decline after failing to hold above 108.20. The asset received bids after expectations of a consecutive 75 basis point (bp) rate hike by the Federal Reserve (Fed) were reduced.
Most economists surveyed by Reuters from Aug. 16-19 expected a half-percentage point hike next month, as in the last survey, which would bring the policy rate to 2.75%-3%.
However, Fed Chairman Jerome Powell's commentary will dispel clouds of uncertainty about future guidance. A slowdown in the pace of interest rate hikes by the Fed is on the agenda to avoid the consequences of a liquidity squeeze in the market.
On the pound front, vulnerable employment data impacted the pound's bulls. However, a decent improvement in labor cost data allowed the Bank of England (BOE) to breathe a sigh of relief.
The rate of inflation is accelerating dramatically in the British zone, and in order to repay the higher payments, an improvement in the wage rate was vulnerable. As a result, BOE policymakers did not independently deploy quantitative tightening measures. The significant improvement in the labor cost index will delight BOE Governor Andrew Bailey as he sets monetary polic
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