GBP/USD EXTENDS DOWNSIDE TO NEAR 1.2150 AHEAD OF UK EMPLOYMENT AND US INFLATION

The GBP/USD pair has stretched its correction to near 1.2150 in the Asian session. The corrective move from the round-level resistance of 1.2200 has extended as anxiety among investors is soaring ahead of the release of the United Kingdom labor market data and United States Consumer Price Index (CPI) figures.

S&P500 futures have added more gains as investors are digesting the collapse of Silicon Valley Bank (SVC), portraying an increase in the risk appetite specifically for equities. Maintenance of caution is highly advised as investors have cut their exposure to lenders from New York to Japan dramatically. Bloomberg reported that the combined market capitalization of the Morgan Stanley Composite Index (MSCI) World Financials Index and MSCI Emerging Markets (EM) Financials Index has dropped about $465 billion in three days.

The US Dollar Index (DXY) is struggling to stretch its recovery towards 104.00 as the SVB collapse has limited the odds of higher rates announcement by the Federal Reserve (Fed). The street is expecting Fed chair Jerome Powell to look for a smaller rate hike or halt the rate-tightening spell. Meanwhile, the alpha offered on the 10-year US Treasury yields has rebounded further to 3.57%.

Investors are awaiting the release of the US inflation, which could be a major trigger for the USD Index. Analysts at Credit Suisse expect “Core CPI inflation to remain steady at 0.4% MoM in February, causing the YoY reading to tick down to 5.5%. Energy and food prices are likely to moderate, with headline inflation also coming in at 0.4% MoM. A reading in-line with our expectations would be uncomfortably high for the Fed, but still consistent with gradual disinflation this year.”

On the Pound Sterling front, the release of the UK Employment data will be of significant importance. As per the consensus, the Claimant Count Change (Feb) will drop by 12.4K, lower than the former release of 12.9K. Three-month Unemployment Rate is expected to increase to 3.8% from the prior release of 3.7%.

The major catalyst would be the Average Earnings data, which is expected to decline to 5.7% vs. the prior release of 5.9%. A slowdown in employment bills and a higher jobless rate would decelerate the pace of galloping inflation, which might delight Bank of England (BoE) Governor Andrew Bailey and other policymakers.