- GBP/USD is marching towards 1.2600 as a Fed rate-cycle pause would trim Fed-BoE policy divergence.
- US labor market conditions carry the potential of making inflation persistent.
- S&P500 futures are showing further losses in early Asia, indicating a risk-off mood.
The GBP/USD pair is approaching the round-level resistance of 1.2600 in the early Tokyo session. The Cable is aiming higher as the Federal Reserve (Fed) is following the language of other central banks. Fed chair Jerome Powell has confirmed that further monetary policy decisions will be data-dependent, which indicates that the central bank has reached an intermediate terminal rate for now.
S&P500 futures are showing further losses in early Asia after a bearish settlement. US equities surrendered their entire gains added in the early New York session amid uncertainty over the further path to be followed by the Fed to tame sticky inflation. Negative market sentiment has faded appeal for risk-sensitive assets.
The US Dollar Index (DXY) is declining towards May 03 low around 101.07 amid neutral guidance from the Fed. Also, the US yields are heavily down amid an increase in demand for US government bonds. The 10-year US Treasury yields have dropped to near 3.36%.
Meanwhile, upbeat US labor market conditions are signaling that a hawkish stance from the Fed would not be over soon as labor shortage could propel inflationary pressures. On Wednesday, the US Automatic Data Processing (ADP) agency reported an addition of fresh 296K jobs in April vs. the estimates of 150K and the former release of 145K.
There is no denying the fact that extreme labor shortage would have been offset by offering higher wages, which carries the potential of making inflation persistent.
On the Pound Sterling front, the Bank of England (BoE) is expected to raise interest rates further as United Kingdom inflation is not ready to leave the double-digit territory despite consistent policy tightening. BoE Governor Andrew Bailey is ready to raise interest rates consecutively for the 12th time. An interest rate hike of 25 bps is anticipated by the market participants.