GBP/USD punches past 1.21, Bailey up next

The British pound is in positive territory on Wednesday. In the European session, GBP/USD is trading at 1.2107, up 0.47%. The pound is recovering from a nasty slide of almost 400 points, in which it dropped below the 1.20 line for the first time since Jan. 23.

Powell goes easy on the markets

The equity markets were nervous ahead of Fed Chair Powell’s remarks at an event in Washington on Tuesday. There was concern that Powell would push back against the recent rally and deliver a hawkish message, especially after the sizzling nonfarm employment report last week. Powell decided not to chastise the markets and essentially reiterated what we heard at last week’s meeting. That message is that inflation is moving lower but needs to fall much further and further rate hikes are likely needed. Powell has said more than once that the Fed policy will not be swayed by one or two economic reports, and he held true to that view by not shifting his stance due to the hot employment release. Equity markets responded positively to Powell’s message while the US dollar was slightly lower against most of the majors.

How much further will the Fed tighten? The markets have revised upwards their forecast for the terminal rate to 5.1%, up from below 5% before the NFP report. Fed Bank of Minneapolis President Neel Kashkari said on Tuesday that he expects rates to peak at 5.4%, and a Citigroup note warned that rates could go as high as 6%. The markets are still expecting a rate cut late in the year, despite Powell stating at the FOMC meeting that there were no plans to lower rates.

There are no releases out of the UK today. BoE Governor Bailey will be in the spotlight on Thursday, as he testifies at the Treasury Committee Hearings. The BoE raised rates by 0.50% last week and the markets will be all ears, looking for clues as to what the central bank has planned for the next meeting on March 23.

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GBP/USD Technical

• 1.1958 and 1.1804 are providing support
• There is resistance at 1.2035 and 1.2173

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