GBP/USD oscillates below 1.2350, downside looks favored on hawkish Fed commentary

• GBP/USD is jugging below 1.2350, preparing for further downside amid a risk-off mood.
• Fed Harker sees the achievement of 2% inflation in CY2025 but has favored slower rate hikes ahead.
• The BOE might continue its hawkish stance on interest rates despite a lower-than-expected December inflation report.

The GBP/USD pair is displaying back-and-forth moves after a south-side drive below the critical resistance of 1.2350 in the early Tokyo session. The Cable witnessed sheer selling pressure on Wednesday after failing to sustain above 1.2435 as hawkish commentaries from Federal Reserve (Fed) policymakers trimmed the risk appetite of the market participants heavily.

Weaker-than-projected United States Producer Price Index (PPI) and Retail Sales data weighed on S&P500. The 500-stock basket weighed down as lower PPI and retail sales figures guarantee that firms will demonstrate weaker operating margins amidst the quarterly earnings season. However, a meaningful drop in the prices of goods and services at factory gates supports weaker inflation projections, which resulted in a heavy drop in the 10-year US Treasury yields to 3.37%.

Contrary to the plunging yields, the US Dollar Index (DXY) displayed a V-shape recovery after refreshing its seven-month low at 101.20 and recaptured the critical resistance of 102.00. The release of the lower-than-anticipated US PPI and Retail Sales data failed to trim the hawkish stance in Fed policymakers’ commentaries.

To achieve price stability in the United States economy, St. Louis Fed's President James Bullard still sees the interest rate peak in a 5.25-5.50% range. Also, Philadelphia Fed President Patrick Harker favored slower interest rates hike ahead but see inflation at 2% in CY2025, which indicates that Fed chair Jerome Powell will remain restrictive beyond CY2024.

On the United Kingdom front, inflation softening below expectations both in headline and core numbers might fail to restrict the Bank of England (BOE) from hiking interest rates further. A note from ING states that "Depending on the resilience of December UK CPI data, it seems too early to dismiss the risk of another 50 basis points (bps) rate hike.”