GBP/USD – Pound extends gains, Bailey testifies about banking crisis

The British pound is up for a second straight day. In the North American session, GBP/USD is trading at 123.37, up 0.40%. Earlier today, BoE Governor Bailey told lawmakers that the UK banking system was safe. The Federal Reserve will make its rate decision on Wednesday.

Bailey reassures lawmakers

BoE Governor Bailey testified before parliament’s Treasury Committee against the backdrop of the collapse of banks in the US and Switzerland. The banking crisis has become the number one hot topic, with central bankers and senior government officials across the globe stressing to a nervous public that the banking system is safe. BoE had a reassuring but cautious message for lawmakers. He said that UK banks had not experienced any stress related to the collapse of Silicon Valley Bank and Credit Suisse. Bailey said that the central bank was on alert due to the banking crisis and that there was evidence of tighter credit conditions. On Monday, Bailey acknowledged that the “path of inflation would not be entirely smooth” but reiterated that he expected inflation to fall sharply in the summer.

ECB President Lagarde suggested last week that the banking crisis could curb demand and inflation and do some of the ECB’s work. Bailey did not go that far in his testimony, but the markets have scaled back expectations, pricing just one more quarter-point hike, which would bring the cash rate to 4.25%. Despite the BoE’s sharp tightening, the fight against inflation has not gone very well, with inflation rising to 10.4% in February, up from 10.1% a month earlier.

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GBP/USD Technical

• GBP/USD is testing resistance at 1.2329. The next resistance line is 1.2425
• There is support at 1.2248 and 1.2152

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