GBP/USD fades Fed-led gains around 1.2180 ahead of US GDP

• GBP/USD remains sidelined around monthly high, recently easing from the top.
• US dollar slumped after Fed’s 0.75% rate hike as Chairman Powell teased net neutrality.
• Downbeat British car production, fears of UK real-estate recession and political jitters probe Pound buyers.
• Flash readings of US Q2 GDP, Xi-Biden meeting and political headlines from London will be the key.

GBP/USD changes hands around the monthly high of 1.2186, recently easing to 1.2165, as bulls and bears jostle amid the market’s indecision during early Thursday morning in Europe. The cable pair’s latest inaction could be linked to the market’s wait for the key data/events, as well as fears of recession and political jitters in the UK. That said, the quote rallied the most in six weeks the previous day as the US Federal Reserve (Fed) failed to impress markets despite announcing a 75 basis points of rate hike.

Also challenging the GBP/USD buyers are the recent headlines concerning Britain. “British car production rose 5.6% in June from a year earlier, as supply chain snags began to ease and zero-emission vehicles saw a record month, an industry body said on Thursday,” said Reuters. Additionally, The UK Times came out with the news suggesting fears of a slowdown in the real estate markets. “The rising cost of debt and a looming recession have caused a “cautious tone across the commercial property market”, said the Royal Institution of Chartered Surveyors in its latest market survey,” per the news.

Elsewhere, the US Treasury yield curve inversion and cautious mood ahead of a meeting between US President Joe Biden and China President Xi Jinping, as well as the US data, also weigh on the Cable pair.

It should be noted that a wider gap between the short-range bond coupons and the longer-term Treasury yields hints at economic pessimism. The US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes. It should be noted that the US 10-year Treasury yield pares recent losses around 2.78% and also remains pressured around 2.98% by the press time.

Furthermore, the UK Times conveys a report suggesting the UK-China tussles as British Foreign Minister, as well as the contestant for the next Prime Minister, Liz Truss, mentioned that she is advocating for increased Commonwealth trade.

On Wednesday, the Fed matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

Moving on, GBP/USD traders should pay attention to the first readings of the US Q2 Gross Domestic Product (GDP) Annualized, expected 0.4% versus -1.6% prior, for fresh impulse. Also important will be the US Price Consumption Expenditure data from the US, as well as the updates from the Xi-Biden meeting.

Technical analysis

GBP/USD buyers keep the reins as it holds onto the previous day’s upside break of the key resistance line from April, now supporting around 1.2070. Also favoring the bulls is the pair’s sustained trading above 21-DMA and a two-week-old support line, around 1.2100, as well as firmer signals from the MACD.

That said, the 50-DMA level near 1.2230 guards the quote’s immediate upside ahead of a descending resistance line from late March, close to 1.2410 at the latest.