GBP/USD approaches 1.2350 key hurdle amid Brexit optimism, Fed’s dovish hike, focus on BoE

• GBP/USD picks up bids to seven-week high marked the previous day.
• Fed’s 0.25% rate hike failed to please bulls amid fears of policy pivot, banking turmoil.
• Strong UK inflation, UK PM Sunak’s Brexit success adds strength to the Cable pair’s run-up.
• BoE is all set for 0.25% rate hike but looming bank fallouts, UK’s political chaos may test the bulls.

GBP/USD renews its intraday high near 1.2310 as it rises towards the seven-week high, marked the previous day, while bulls keep the reins ahead of the Bank of England’s (BoE) monetary policy announcements. Adding strength to the Cable pair’s run-up towards the 10-month-old resistance line near 1.2350 is the Brexit optimism and the Federal Reserve’s (Fed) dovish hike, as well as the downbeat US Treasury bond yields.

British Prime Minister Rishi Sunak’s victory in getting the Brexit bill passed through the House of Commons, despite major criticism from Tory rebels seems to underpin the GBP/USD upside. "Rishi Sunak has escaped an overly damaging Commons rebellion over his revised plan for post-Brexit Northern Ireland trade, winning a vote on the measure with 22 of his own MPs voting against the deal,” said The Guardian.

Also keeping the Cable buyers hopeful could be the hawkish hopes from the BoE, especially after the previous day’s strong UK inflation data. That said, Britain’s headline inflation, namely the Consumer Price Index (CPI), rose to 10.4% YoY in February versus 9.8% expected and 10.1% prior while the Core CPI rose to 6.2% compared to 5.8% market forecasts and previous readings.

On the other hand, the US Federal Reserve (Fed) confirmed the market’s expectations of announcing a 0.25% rate hike but failed to convince the policy hawks and drowned the US Dollar. The reason could be linked to the statements saying, “Some additional policy firming may be appropriate,” instead of previous remarks like “Ongoing increases in the target range will be appropriate.” It should be noted that Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen’s comments triggered the market’s pessimism as Fed’s Powell said that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears but failed to last long. Further, US Treasury Secretary Janet Yellen ruled out considering “blanket insurance” for bank deposits. Recently, Bloomberg also came out with the news suggesting that the Federal Deposit Insurance Corporation (FDIC) is said to delay the bid deadline for a Silicon Valley private bank.

Against this backdrop, S&P 500 Futures print mild gains around 3,980, up 0.25% intraday following the biggest daily slump in two weeks while the US 10-year and two-year Treasury bond yields stay pressured around 3.47% and 3.96% at the latest, licking their wounds after falling the most in a week.

Moving on, GBP/USD traders may keep their eyes on the political chaos in the UK’s House of Commons and second-tier US data for additional directions while focusing more on the BoE announcements. That said, the “Old Lady”, as the BoE is casually termed, is expected to roll out a 0.25% rate hike and may not entertain GBP/USD traders much, apart from initial whipsaw, unless the inflation outlook and BoE Minutes suggest further rate lifts.

Also read: BoE Interest Rate Decision Preview: Preparing the ground for a rate hike pause in May

Technical analysis

A two-week-old ascending trend line, around 1.2240 by the press time, directs GBP/USD buyers towards the key resistance line from May 2022, close to 1.2350 at the latest.