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Title: GBP/USD sees cushion around 1.2180 amid subdued DXY, BOE policy in focus

August 01, 2022 12:45 AM ET

By: AnalysisWatch

The GBP/USD pair saw a slight setback after reaching a high of 1.2198 in Asian trading. The asset is likely to find a cushion around 1.2180 as investors are expecting another rate hike from the Bank of England (BOE) this week.

The BOE is likely to raise its interest rates by 25 basis points (bps) as the poor economic situation in the UK is not prompting the BOE to raise rates without hesitation. The main catalyst keeping the BOE from raising rates is lower average hourly earnings data.

Price pressures in the UK economy are rising rapidly. Inflation has reached 9.4% and is not yet showing signs of exhaustion. Therefore, market participants expect the inflation rate to exceed the double-digit mark. At a time when inflation is soaring, household incomes have fallen, and further interest rate hikes could significantly limit employment opportunities.

Meanwhile, the U.S. Dollar Index (DXY) is likely to extend its losses if the level falls below Monday's low of 105.63. This week, the release of U.S. Nonfarm Payrolls (NFP) data is significant. The market consensus is that the US economy has added 250k jobs since the last release (372k). Economic data is expected to turn negative as various US tech companies have halted their hiring processes. The unemployment rate is also estimated to be stable at 3.6%.

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