GBP/USD recovers from 1.2350 as USD Index drops amid US debt-ceiling raise approval

• GBP/USD has recovered amid a sell-off in the USD index after approval of a raise in the US debt-ceiling.
• The US Dollar Index has critically come under pressure as the approval of a higher US debt-ceiling has faded fears of a spike in interest rates.
• BoE Bailey is bound to halve inflation by year-end as promised by UK PM Rishi Sunak.

The GBP/USD pair has attempted a recovery move after trading sideways below 1.2350 in the Asian session. The strength in Cable has come due to a sheer decline in the US Dollar Index (DXY) after the approval of a raise in the US debt-ceiling.

House of Representatives Kevin McCarthy-led Republicans have approved a raise in the $31.4 trillion US borrowing cap for two years as the White House agreed to cut spending for the budget but remained stubborn for neither cutting on health coverage nor increasing poverty.

S&P500 futures have trimmed some gains added in early Asia despite receding fears of a default by the United States Federal on obligated payments.

The US Dollar Index has critically come under pressure as the approval of higher US debt-ceiling has faded fears of a spike in interest rates if the US Treasury had announced a default. Also, an increase in the US debt-ceiling would attract credit rating agencies, which would downgrade the long-term credibility of the US economy. This may have a significant impact on the US Dollar Index (DXY) and US equities.

This week, investors will keep their focus on the United States Automatic Data Processing (ADP) Employment data (May), which will release on Thursday. As per the consensus, the US labor market has witnessed a drop in payroll numbers by 22K vs. the former addition of 296K.

Meanwhile, the Pound Sterling has shown recovery as the Bank of England (BoE) is expected to raise interest rates further knowing the fact that inflationary pressures in the United Kingdom are expected to remain extremely stubborn. BoE Governor Andrew Bailey is bound to halve inflation by year-end as promised by UK PM Rishi Sunak.

Barclays expects the BoE to extend the tightening cycle beyond the June meeting, sees one additional 25bps hike in August - now sees BoE terminal bank rate at 5%.