GBP/USD steadies above 1.2200, focus shifts to UK Inflation and US PMI

• GBP/USD is juggling in a 1.2205-1.2233 range ahead of UK Inflation.
• A CPI figure of 9.1% may compel the BOE to elevate its interest rates in July significantly.
• The UK economy looks unable to avoid slowing growth if a technical recession won’t kick in.

The GBP/USD pair is oscillating in a narrow range of 1.2205-1.2233 in the early Asian session after a minor rebound from a low of 1.2173, recorded on Friday. The pair is displaying a balanced market profile and is expected to turn imbalance as higher expectations of Consumer Price Index (CPI) figures by the UK economy will spurt the recession fears and will weaken the cable further.

As per the market consensus, the UK inflation is seen at 9.1%, a little higher than the prior print of 9%. The maintenance of an inflation figure equal to or above 9% is eventually a wake-up call for a recession situation. This will force the Bank of England (BOE) to sound extremely hawkish in its July monetary policy meeting. The BOE has elevated its interest rates by 25 basis points (bps) last week, which has pushed its interest rate officially to 1.25%.

Meanwhile, a forum of more than 50 senior executives from finance, business, and policymaking on FTs City Network said that policymakers faced difficult decisions on how to mitigate the worst effects of an economic downturn. If the UK misses a technical recession, a situation of stagnation cannot be ruled out. This may add further volatility to the cable going forward.

On the dollar front, the US dollar index (DXY) is displaying a subdued performance. The DXY is oscillating between 104.70-104.80 and is expected to shift into the grip of bears after violating the crucial support of 104.60. This week, investors will focus on the release of the US PMI numbers by the IHS Markit. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4.