After a spectacular rally on Thursday as short squeezes continued, the GBP/USD has held steady in Tokyo today. The bulls have pushed through their previous barrier of resistance at 1.2500 and are waiting for a new spurt of momentum as they hover near their highest point in 10 months.
Investors worried about the dollar’s value this week as they considered the effects of U.S. banking problems and the debt ceiling standoff. On Thursday, investors fled the Greenback before Friday’s release of the first estimate of first-quarter GDP and the week’s initial jobless claims.
Even though the data showed that the US economy expanded by 2% in Q1 with personal consumption spending up 4.2%, inflation remains a concern with the GDP Price Index and the core inflation measure increasing by 4.0% and 4.9%, respectively.
Morgan Stanley (MS) forecasts a 25 basis point hike and a conditional pause from the Federal Open Market Committee at their upcoming meeting next week, which has investors’ full attention. However, recent stress in the banking system may present a challenge for hawks in the United States central bank. However, a strong labour market and high inflation lend credence to the May hike thesis, leading MS to predict that the meeting “is likely to represent a turning point in the monetary policy tightening cycle.”