GBP/USD rises above 1.2000 after some retracement and UK inflation

GBP/USD recovered the psychological resistance of 1.2000 amid strong market attitudes. Low incomes and high inflation rates could exacerbate the hardships British families face. A lower US inflation forecast could have a negative impact on DXY.

After receiving a bid below 1.2000 in the initial Tokyo session, the GBP/USD pair rebounded significantly. Despite risk market impulses that have reinforced risk perception for the asset, the cable stayed in the hands of the bulls.

The strength of the pound remains bullish despite sluggish UK employment data on Tuesday. The unemployment rate remained unchanged at 3.8%. However, the change in number of claims plummeted to 20K from the previous announcement of -34.7k.

The catalyst that plagues market investors is the disappointing average hourly earnings, which fell to 6.2% from the previous 6.9% and 6.8%. The investment community knows that the UK economy is facing headwinds from rising price pressures from rising energy and food costs. Declining profits and price pressure will have a devastating effect on market sentiment.

Meanwhile, the US Dollar Index (DXY) is expected to decline further as the July inflation forecast declines further and oil price volatility continues . This lowered expectations that the Fed would raise rates by 1% at its July monetary policy meeting.

The UK Consumer Price Index (CPI) release is at the forefront of today’s session. Economic statistics look at 9.3 percent , higher than the previous report 9.1 percent . However, the core CPI excluding oil and food could drop 10bp from our previous estimate to 5.8%.