The GBPUSD pair came under significant selling pressure and fell more than 240 pips from 1.2065, or a multi-day high reached on Tuesday amid a massive US Dollar rise.
Fed Chair Powell’s hawkish statements increased betting for a 50-basis point rate hike in March and boosted the dollar.
In fact, the USD Index, which measures the value of the US dollar against a basket of currencies. Surged to a three-month high in response to further hawkish remarks by Federal Reserve Chair Jerome Powell. Powell said in prepared remarks for his semi-annual testimony to Congress that interest rates may need to rise quicker and higher. Than previously anticipated to confront persistently rising inflation. Powell also stated that the Fed is willing to accelerate rate rises and warned against prematurely easing policy.
Markets reacted quickly and began pricing in a higher likelihood of a 50-basis point increase at the March policy meeting. As a result, the yield on the benchmark 10-year US government bond returned to above 4.0%. While the rate-sensitive two-year Treasury note reached its highest level since 2007.
The risk-aversion drive helps the safe-haven Greenback even more and adds to the continued fall.
Apart from that, a new wave of global risk-aversion trading added to the safe-haven Greenback’s strength. Investors remain concerned about economic headwinds caused by fast rising borrowing costs, which, along with dwindling confidence about a strong Chinese economic rebound and US-China tensions, weighed on global risk sentiment and benefited conventional safe-haven assets.
The aforementioned factors continue to boost the USD, dragging the GBPUSD pair down the 1.1800 area, or its lowest level since November during the Asian session. On Wednesday, there will be a session. Bulls, however, were underwhelmed by overnight hawkish statements from Bank of England (BoE) policymaker Catherine Mann, who reiterated that more has to be done with rates. Nevertheless, markets appear to have completely priced in another rate rise by the Bank of England. Nevertheless, some experts believe the UK central bank may suspend the present tightening cycle. This implies that the major’s path of least resistance is to the downward.
The UK has no important market-moving economic data scheduled on Wednesday, putting the GBPUSD pair at the mercy of USD pricing dynamics. Later in the early North American session, traders will look to the US for direction. JOLTS Job Openings data and ADP report on private-sector employment. Apart from that, Powell’s second day of hearing before the House Financial Services Committee should increase USD demand and give the major a boost. Yet, the underlying background remains solidly in favor of negative traders, and any effort at recovery risks fizzling out rapidly.
