The GBP/USD pair attracts some dip-buying near the 1.2325 region on Tuesday and turns positive for the third straight day, though it remains confined within a tight trading band held over the past week or so. The pair is currently placed near the top end of its daily range, around the 1.2375 region, and is supported by a combination of factors.
Investors remain anxious over the possibility of further monetary policy tightening by the UK central bank, bolstered by stronger-than-expected consumer inflation figures released last week. This, in turn, underpins the British Pound (GBP) and acts as a tailwind for the GBP/USD pair amid subdued US Dollar (USD) price action. The USD Index (DXY), which tracks the Greenback against a basket of currencies, enters a bullish consolidation phase following an early uptick to its highest level since mid-March.
The latest optimism over raising the US debt ceiling boosts investors’ confidence, evident from a generally positive tone around the equity markets, and undermines the safe-haven buck. Meanwhile, the downside for the USD seems limited amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. The current market pricing indicates a greater chance of another 25 bps lift-off at the June FOMC meeting. The expectations were lifted by the recent hawkish remarks by several policymakers.
The Core PCE Price Index – the Fed’s preferred inflation gauge – released on Friday indicated stick inflation and reaffirmed hawkish Fed expectations. This makes it prudent to wait for strong follow-through buying before confirming that the recent pullback from over a one-year high touched earlier this month has run its course and placing fresh bullish bets around the GBP/USD pair. Traders now look to the Conference Board’s US Consumer Confidence Index for a new impetus later during the early North American session.