GBP/USD drops to near yearly lows at 1.2970 as risk-off impulse improves the safe-haven appeal

• GBP/USD is auctioning below 1.3000 amid rising odds of a tight Fed policy.
• FOMC member James Bullard sees interest rates at 3.5% by the end of 2022.
• The UK’s CPI at 7% has dented the demand for the pound.

The GBP/USD pair has plunged below the psychological support of 1.3000 amid an improvement in the demand for the safe-haven assets. Risk-on impulse has dented the demand for the risk-perceived assets, which is continuing the three-day losing streak of the asset on Tuesday.

The cable is witnessing an extreme sell-off as the US dollar index (DXY) has been strengthened on getting some bets over a 75 basis point (bps) interest rate hike by the Federal Reserve (Fed). Federal Open Market Committee (FOMC) member James Bullard in his speech on Monday cited that the Fed is open to a 75 bps rate hike, however, a rate hike not more than 50 bps will be appropriate. St. Louis Fed President James Bullard sees interest rates to 3.5% by the end of this fiscal year. This has triggered the greenback bulls, which has pushed the DXY marginally above 101.00 at the press time.

Meanwhile, the pound bulls have also been hammered by a higher Consumer Price Index (CPI) figure. The UK’s yearly Consumer Price Index (CPI) landed at 7%, higher than the preliminary estimate of 6.7% and the previous print of 6.2%. This raised the expectations for a fourth-rate hike by the Bank of England (BOE). Apart from that, Core CPI landed higher at 5.7%, which hinted that the UK households are facing the heat of higher energy bills and food prices.

For further guidance, investors will keep an eye over the speech from the Fed chair Jerome Powell, which is due on Thursday. While the sterling docket will release the Retail Sales data on Friday. A preliminary estimate for the UK’s Retail Sales is 2.8% against the prior print of 7%.