GBP/USD falls as key support level put at risk

The US Dollar is expected to finish this trading week with solid gains due to Fed’s hawkish comments as well as the latest US data.

US Consumer Sentiment improved according to the University of Michigan. The UK avoided a recession in Q4 2022, though its forward economic outlook suggests a weaker British Pound.

Consumer Sentiment surpassed predictions of 65 and increased to 66.4, indicating a better financial situation. In addition, the expected inflation rate for the year rose from 3.9% in January’s final reading to 4.2%, while the inflation estimations for a five-year period remained steady at 2.9%.

The GBP/USD pair snaps three straight days of gains and drops as it tested the 50-day Exponential Moving Average (EMA) at 1.2126, as UK economic data showed the economy did not grow, while consumer sentiment in the US improved. At the time of writing, the GBP/USD exchanges hands at 1.2055.

The US Dollar Index (DXY), a measure of the greenback’s value vs. a basket of peers, advances 0.60%, up at 103.65, underpinned by US Treasury bond yields, which, affected by hawkish Fed speakers commentary during the last week, broke the 3.70% threshold, at 3.728%.

The UK economic calendar revealed that GDP for the last three months of 2022 stood at 0% and avoided entering a recession, foresaw by the Bank of England (BoE). On a monthly basis, December’s GDP contracted by -0.5%, reported the Office for National Statistics.

The gloomy scenario in the UK suggests that the British Pound (GBP) would be under pressure as the BoE struggles to tame inflation which reached a 41-year high at 11.1% in October of 2022. The BoE’s latest monetary policy meeting revealed a split vote amongst its members.

The BoE forward discussions and guidance would be interesting, which could reassure the central bank’s commitment to tackle inflation.