GBP/USD aims to recapture 1.2300 ahead of UK CPI data

• GBP/USD is looking to recapture Tuesday’s high around 1.2300 as focus shifts to UK Inflation.
• Higher Average Earnings due to the shortage of labor have accelerated hawkish Bank of England bets.
• Strength in the US Treasury yields has supported the USD Index and has triggered a risk-aversion theme.

The GBP/USD pair is marching higher to recapture the critical resistance of 1.2300 in the early Tokyo session. The Cable has resumed its upside journey after a corrective move to near 1.2247 and is expected to extend gains despite caution in the risk profile. The Pound Sterling has dodged the risk-aversion theme as the release of the higher wage growth has accelerated hawkish Bank of England (BoE) bets.

Average Earnings in the United Kingdom have climbed to 6.4% vs. the projection of 6.3%, which has triggered chances of continuation of an interest rate hike by the BoE. BoE Governor Andrew Bailey has already warned that rising wages due to labor shortage is offsetting the impact of the decline in energy prices.

S&P500 faced gradual selling pressure from the market participants amid volatility inspired by the stretched weekend. Also, further strengthening of the US Treasury yields weighed on investors’ risk appetite. The alpha generated by 10-year US Treasury yields climbed above 3.54%. This also provided a cushion to the US Dollar Index (DXY) and pushed it back toward the critical resistance of 102.00.

Meanwhile, commentary from Tom Barkin, the President, and CEO of the Federal Reserve (Fed) Bank of Richmond favoring the continuation of policy tightening as the inflation rate is well above the median Consumer Price Index (CPI) has also supported the risk-aversion theme.

For further guidance, investors will focus on the release of the United States Producer Price Index (PPI) data, which will release on Wednesday.

On the UK front, December’s inflation report will be keenly watched. Analysts at CitiBank expect headline CPI inflation to moderate further this week to 10.5% on an annual basis. Core CPI may prove somewhat more resilient at 6.2%.