GBP/USD perceives barriers below 1.1980 as Fed hawks strengthen risk-averse sentiment

The GBP/USD pair has faced selling pressure around 1.1976 during the Tokyo session. The brief Cable recovery from the 1.1940 support level has terminated as hawkish remarks from Federal Reserve (Fed) policymakers have strengthened the risk aversion theme.

The US Dollar Index (DXY) has resumed its advance after a retracement to approximately 106.60. Futures on the S&P500 have rebounded marginally during the Asian session, although a reversal is still quite distant. In the interim, rates on 10-year US Treasury securities have rebounded to approximately 3.69 percent.

As investors feel the slowing in the interest rate hike is not indicative of a suspension in policy tightening, US Treasury bonds have regained its alpha. Policymakers at the Federal Reserve (Fed) expended much effort to reach an inflation rate of 2%, yet the headline inflation rate in the United States is 7.7%.

Thomas Barkin, president of the Richmond Fed Bank, remarked on Monday, as reported by Reuters, that he favors fewer future interest rate hikes as the central bank works to decrease overly high inflation.

According to Financial Times, Loretta Mester, president of the Cleveland Fed Bank, believes the Federal Reserve is not close to stopping its rate hikes. She highlighted that additional favorable inflation statistics and indications of moderation are required prior to establishing a plan to halt rate hikes.

In the future, the US Gross Domestic Product (GDP) numbers will be closely scrutinized. The third quarter GDP estimate is anticipated to remain unchanged at 2.6%. As the Fed is devoted to achieving price stability, it is strongly recommended to reduce the growth rate. A period of rising growth rates will continue to keep inflation in check, as a robust GDP indicates robust demand from individuals, which does not translate to a decline in price rise.

Economists at Danske Bank have concluded that the United Kingdom has officially entered a recession. Expectations are for four consecutive quarters of negative GDP growth, with growth not resuming until the fourth quarter of CY2023.