GBP/USD Rises on Weaker USD Amid Banking Woes

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GBP/USD Rises on Weaker USD Amid Banking Woes

GBP/USD pair has gained positive traction for the second straight day, though lacks follow-through. The Federal Reserve's less aggressive stance in the face of worsening economic conditions has exerted heavy downward pressure on the US Dollar, which lends support to the GBP/USD pair. The markets are now pricing in a nearly 90% chance of a smaller 25 bps lift-off at the upcoming FOMC meeting, which, along with signs of stability in the financial markets, weighs on the safe-haven Greenback.

The collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - forced investors to scale back bets for more aggressive policy tightening by the US central bank. Multi-billion-dollar lifelines for troubled banks in the US and Europe have eased fears about widespread contagion, boosting investors' confidence, which is evident from a modest recovery in the equity markets. However, persistent worries about a full-blown global banking crisis keep a lid on the optimism.

Meanwhile, the Bank of England's (BoE) quarterly survey showed that the median UK public's expectations for inflation for the coming year dropped sharply in February. This has reaffirmed bets that the BoE will pause its rate-hiking cycle next week, contributing to capping the GBP/USD pair. Market participants are now looking to the release of the Michigan US Consumer Sentiment Index for short-term opportunities later during the early North American session on Friday.

The focus, however, will remain on the key central bank event risks next week - the outcome of the highly-anticipated FOMC policy meeting, scheduled to be announced next Wednesday, followed by the BoE policy meeting on Thursday. Despite this, the GBP/USD pair seems poised to register modest weekly gains and remains at the mercy of the USD price dynamics.

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