GBP/USD teases bears around 1.2250 ahead of UK inflation, Fed Chair Powell’s testimony

• GBP/USD snaps two-day uptrend, flirts with intraday low at the latest.
• Brexit pessimism joins UK’s political chaos to portray downbeat conditions at home.
• BOE’s failure to impress bulls highlights UK CPI amid hopes of faster/heavier rate hikes.
• Powell needs to justify the biggest rate increase since 1994 and signal Fed’s aggression to please USD bulls.

GBP/USD fails to stay on the bull’s radar as it retreats to 1.2250 during the mid-Asian session on Wednesday. The cable pair’s latest weakness could be linked to the market’s risk-off mood, as well as anxiety ahead of the key UK Consumer Price Index (CPI) and Fed Chair Jerome Powell’s Testimony. Also drowning the quote is the pessimism surrounding Brexit and the UK’s political conditions, not to for fears of disappointment from the Bank of England (BOE).

Market sentiment sours amid fears of the Fed’s aggression, as well as concerning the US recession. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. While portraying the mood, S&P 500 Futures and the US 10-year Treasury yields fade the recent upside momentum.

On the other hand, fears that Fed’s Powell will push for more rate hikes, as well as downbeat expectations from the UK CPI, also weigh on the GBP/USD prices. Forecasts suggest that the UK CPI could ease to 0.6% MoM in May versus 2.5% prior even if it manages to stay firmer with 9.1% YoY figures, compared to 9.0% prior. Further, the Retail Price Index is also expected to ease while the Producer Price Index may increase during the stated month.

Elsewhere, a study by the Resolution Foundation think tank and London School of Economics mentioned that the British workers’ real pay will be cut by £470 thanks to Brexit, per the UK Mirror. “The research estimates that labor productivity will be reduced by 1.3% by the end of the decade by the changes in trading rules alone,” mentioned the news.

Furthermore, major rail strikes in the UK and Prime Minister Boris Johnson’s struggle to defend the position, especially following the allegations of breaking covid rules, exert downside pressure on the GBP/USD prices.

Looking forward, the GBP/USD pair may witness a kneejerk upside in case of the firmer UK inflation data. However, the recovery could gain a boost if Fed’s Powell fails to impress the greenback buyers.

Technical analysis

The GBP/USD pair’s successful trading above the 100-HMA and 200-HMA, as well as the RSI’s support to the recent higher lows in prices, keeps the pair buyers hopeful. That said, the latest pullback remains elusive until the quote stays above the 200-HMA support of 1.2230.

Meanwhile, recovery moves need validation from the 1.2310 hurdle, comprising the nearby triangle’s resistance line.