Market news
28.04.2022, 07:38

GBP/USD rebounds from its lowest level since July 2020, back above mid-1.2500s

  • GBP/USD staged modest intraday recovery from sub-1.2500 levels or the fresh YTD low.
  • The risk-on impulse acted as a headwind for the safe-haven USD and extended support.
  • Investors now look forward to the Advance US Q1 GDP report for a fresh trading impetus.

The GBP/USD pair reversed an intraday dip to its lowest level since July 2020, and climbed to a fresh daily high, around the 1.2560-1.2565 area during the early European session.

The pair showed some resilience below the 1.2500 psychological mark and witnessed some intraday short-covering move, though any meaningful recovery still seems elusive. Some cross-driven strength stemming from a sharp spike in the GBP/JPY cross - following the Bank of Japan's ultra-dovish policy stance - turned out to be a key factor that extended support. That said, the prevalent strong bullish sentiment surrounding the US dollar should cap the upside for the GBP/USD pair.

The USD rallied to a five-year high and continued drawing support from expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. In fact, the US central bank is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year. This, along with the deteriorating global economic outlook, boosted the greenback's reserve currency status.

Investors now seem worried that a brewing energy crisis in Europe could impact the economic growth in the region. The concerns resurfaced after Russia announced a plan to halt gas flows to Poland and Bulgaria on Wednesday amid a standoff over fuel payments from “unfriendly” buyers in rubles. Moreover, the latest COVID-19 outbreak and prolonged lockdowns in China have been fueling fears about stalling global growth, which, in turn, benefitted the safe-haven buck.

That said, the risk-on impulse - as depicted by a generally positive tone around the equity markets - acted as a headwind for the USD. Market participants now look forward to the US economic docket, highlighting the release of the Advance Q1 GDP report and the usual Weekly Initial Jobless Claims data later during the early North American session. The data might influence Fed rate hike expectations, which, in turn, will drive the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch

 

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