GBP/USD rebounds from 1.2260, focus is on UK Inflation and Fed Powell

• GBP/USD has picked significant bids around 1.2260 on higher forecasts for the UK Inflation.
• The annual UK CPI figure is seen marginally higher at 9.1%.
• Fed Powell’s testimony will bring a decisive move in the DXY.

The GBP/USD pair declined after failing to surpass the critical hurdle of 1.2280 but has bounced back after hitting a low of 1.2259. Broadly, the asset is auctioning in a balanced market profile as investors are awaiting the release of the UK Consumer Price Index (CPI), which is due on Wednesday.

As per the market consensus, the UK Office for National Statistics is expected to report the annual CPI at 9.1%, marginally higher than the former figure of 9%. While the core CPI will slip to 6% vs. 6.2% reported earlier. It looks like the food and oil prices have a significant impact on the UK inflation figure. This will compel the Bank of England (BOE) to raise interest rates significantly to contain the price pressures.

It is worth noting that the BOE has less freedom to elevate interest rates as the Unemployment Rate has increased to 3.8% from the prior print of 3.7%. Also, the growth prospects are not promising. Higher interest rates are expected to be backed by upbeat growth prospects and a lower jobless rate. Unavailability of the same is restricting the BOE to take bold decisions.

On the dollar front, the US dollar index (DXY) has advanced gradually after printing an intraday low of 104.23. The Fed showed a historic move last week after elevating the interest rates by 75 basis points (bps) for the first time in the past 25 years. The DXY took the burden of the bumper interest rate announcement and now a sideways move is expected ahead of Fed chair Jerome Powell’s testimony.