GBP/USD oscillates below 1.2500 ahead of US Inflation

• GBP/USD is likely to witness more downside as stable US inflation forecasts have underpinned the risk-off impulse.
• There is no visible impact on the US CPI despite balance sheet reduction and two rate hikes by the Fed.
• The inflation in the UK economy is expected to kiss the double-digit mark.

The GBP/USD pair is balancing below the psychological support of 1.2500 and is expected to imbalance lower as investors are dumping the risk-sensitive assets amid uncertainty over the release of the US inflation. The cable witnessed a steep fall on Thursday after failing to overstep the critical hurdle of 1.2560.

The Federal Reserve (Fed) has tightened its policy by elevating the interest rates and a steep reduction in its balance sheet. The Fed announced rate hikes in March and May by 25 basis points (bps) and 50 bps respectively and one more jumbo rate hike is expected next week. No doubt, the central bank has quickly paddled its quantitative tightening measures, however, there is no visible impact on the price pressures.

The US Consumer Price Index (CPI) is seen stable at 8.3% on annual basis. A meaningful impact on the inflationary pressures after necessary quantitative measures would have trimmed uncertainty in the FX domain. So, the unavailability of any countable impact on the US CPI has escalated uncertainty to a great extent. The US economy added decent job opportunities in the labor market in May. A stable US inflation along with a tight labor market will compel the Fed to keep up the extreme hawkish stance next week.

On the pound front, the Bank of England (BOE) looks unable to clean up the inflation mess. The market participants are seeing the price pressures climbing to near double-digit figures. It looks like the BOE should have inculcated extra pace while turning the interest rate wheel. Also, the soaring inflation is trimming the growth forecasts in the UK economy.