GBPUSD aims to recapture 1.2000 amid upbeat market mood, UK Inflation eyed

• GBPUSD is looking to recapture 1.2000 as risk-on regains traction post-Poland noise.
• Declining odds for a 75 bps rate hike by the Fed have weighed heaving on US Treasury yields.
• A significant rise in oil and food prices is expected to accelerate UK headline CPI to 10.7%.

The GBPUSD pair has turned sideways after resurfacing from the critical support of 1.1800 in the late New York session. The Cable bulls are expected to recapture the psychological resistance of 1.2000 as the risk-on impulse has regained traction.

A significant responsive buying move in the US dollar index (DXY) after registering a fresh three-month low of 105.34 has concluded around 107.00 as initiative sellers have stepped in. The S&P500 futures recovered sharply after a vertical decline as escalated geopolitical tensions mounted volatility in the global markets.

The cross of two stray Russian rockets into the territory of NATO-member Poland led to a resurgence of geopolitical tensions as the market participants considered that Russia is expanding its invasion plans to other NATO members. However, Russian defenses have denied the same.

Meanwhile, the 10-year US Treasury yields dropped further to 3.77% as the Federal Reserve (Fed) is highly expected to drop the continuation of the 75 basis points (bps) rate hike regime in its December monetary policy meeting. As per the CME FedWatch tool, chances for a 75 bps rate hike have tumbled below 15%.

On the UK front, Pound bulls capitalized on improvement in labor cost data but Poland's noise dented market sentiment. The Average Earnings landed higher at 5.7% than the consensus of 5.6%. Households in the UK region are already facing turbulence of decline in real income due to escalating inflationary pressures. An improvement in earnings data may support them to offset inflation-adjusted payouts.

Going forward, investors will keep an eye on the inflation data. The headline Consumer Price Index (CPI) is seen extremely higher at 10.7% vs. the prior release of 10.1%. While the core CPI that excludes oil and food prices may decline marginally to 6.4% against the former release of 6.5%.