GBP/USD has started the new week under bearish pressure and declined below 1.2300 before staging a rebound in the European morning. The pair could have a difficult time regaining its traction unless the market mood improves later in the day.
Investors are concerned about rising crude oil prices causing energy inflation to remain uncomfortably high. The decision by some OPEC+ producers to voluntarily reduce output by a total of more than 1 million barrels per day until the end of the year caused crude oil prices to surge higher at the beginning of the week. The barrel of Brent was last seen rising more than 6% on the day at $84.50.
In case safe-haven flows drive the action in financial markets in the second half of the day, the US Dollar could continue to gather strength and weigh on GBP/USD. As of writing, S&P 500 Futures were down 0.15% on the day while Dow Futures were up 0.3%.
Meanwhile, the CME Group FedWatch Tool shows that the probability of a 25 basis points Federal Reserve (Fed) rate hike in May rose above 60% from 48% on Friday.
Later in the day, hawkish Fed bets could help the USD find demand in case the ISM Manufacturing PMI survey reveals an increase in the sector’s input inflation. The Priced Paid Index is forecast to edge higher to 53.8 in March from 51.3 in February. On the flip side, a decisive rebound above 50 in the headline PMI, which is expected to come in at 47.5%, could help the risk sentiment to improve and limit the USD’s upside.
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