The GBP/USD currency pair has continued its decline near 1.2000, having reversed a significant amount of Wednesday’s PMI-inspired gains. For the remainder of the day, markets will closely monitor US stocks and Brexit-related news.
Minutes from the previous Federal Open Market Committee (FOMC) meeting, before the good January employment report and inflation data, revealed Wednesday that some policymakers believed a 50 basis point rate hike would help them reach the inflation target faster.
The report also stated that participants saw positive inflation risks due to China’s openness and the Russia-Ukraine confrontation. Although the minutes’ statements were not unexpected, they reminded investors of the Fed’s commitment to the tight policy. As a result, the US Dollar gained strength in the late US session, weighing on the GBP/USD pair.
The US Bureau of Economic Analysis’ (BEA) second estimate of fourth-quarter GDP growth and the Chicago Fed’s National Activity Index will be featured in the US economic docket on Thursday, alongside weekly Initial Jobless Claims.
These data releases are unlikely to have a substantial impact on the performance of the US Dollar (USD) against its rivals. Yet, risk perception may drive financial market behaviour in the second half of the day. In the European session, US stock index futures are up between 0.35% and 1%. Following Wednesday’s indecisive close, a significant comeback in Wall Street’s key indexes should weaken the safe-haven USD while helping the GBP/USD contain its losses and vice versa.
Meanwhile, British Foreign Secretary James Cleverly allegedly warned Tory backbenchers late Wednesday that Northern Ireland (NI) protocol negotiations with the EU still had “a lot of hurdles” to overcome. Furthermore, Rishi Sunak stated that MPs would vote on the final NI protocol deal with the EU.
Trade Idea
The GBP/USD pair must retake 1.2070 and stabilise above that level to attract buyers. In that case, 1.2100 (100-period SMA) is expected to operate as a strong resistance level before the pair attempts to reach 1.2140 (Fibonacci 50% retracement).