- GBP/USD is needed to cross the 1.1360 hurdle for an upside momentum amid a cheerful market mood.
- The Fed is not ready to pause the rate hike spell until it sees compelling evidence of an inflation slowdown.
- Loss of confidence in UK PM Liz Truss's leadership has escalated UK’s political instability.
The GBP/USD pair is facing barricades around the immediate hurdle of 1.1360 in the Tokyo session. The hurdles around 1.1360 seem less powerful amid escalating risk appetite of the market participants. S&P500 futures have extended their gains in the Tokyo session after back-to-back upbeat trading sessions. The pound bulls will get strengthened after overstepping the above-mentioned hurdle.
Meanwhile, the US dollar index (DXY) is displaying a subdued performance of around 112.00. The asset could lose further amid a decline in safe-haven appeal. On contrary, returns on US bonds are still solid amid firmer hawkish Fed bets. The 10-year US Treasury yields have extended their gains above 4.01%, at the time of writing.
As per the CME FedWatch tool, chances for a fourth consecutive 75 basis point (bps) rate hike announcement stand around 96%.
In response to soaring inflationary pressures, Minneapolis Fed Bank President Neel Kashkari stated on Tuesday that “Until I see some compelling evidence that core inflation has at least peaked, not ready to declare a pause in rate hikes,” reported Reuters.
Fed’s continuous rate hike measures have done little in softening the inflation rate. The headline Consumer Price Index (CPI) has been trimmed amid lower gasoline prices while the core CPI is well-anchored amid rising prices in the service sector.
On the UK front, the Bank of England (BOE) has announced its bond-selling program belonged to Asset Purchase Facility (APF) from November 1. This will trim liquidity from the market.
UK’s political instability has reached the rooftop as officials have lost confidence in UK PM Liz Truss’s leadership. A YouGov poll of Tory members found that 55% would now vote for Rishi Sunak, who lost out to Ms. Truss if they were able to vote again, while just 25% would vote for Ms. Truss.
On Wednesday, the release of the UK inflation data will be of utmost importance for further direction. As per the projections, the headline and core inflation may incline by 10 basis points each to 10% and 6.4% respectively. A return to a double-digit inflation figure could trigger more headwinds for the UK economy.