GBP/USD juggles below 1.2350, upside remains favored as UK Inflation strengthens further

• GBP/USD is oscillating below 1.2350 as expectations of a steady policy by the Fed have improved risk sentiment.
• S&P500 futures remained choppy on Tuesday despite the widening US Goods Trade Deficit.
• More rates would be welcomed by the BoE if there would be evidence of persistent inflation.

The GBP/USD pair is demonstrating a back-and-forth action below 1.2350 in the early Asian session. The Cable has turned sideways after a bumper rally and is expected to stretch its upside journey further amid improved sentiment for risk-sensitive assets. The major has been underpinned as the market participants are not expecting bold decisions on interest rates from the Federal Reserve (Fed) ahead.

S&P500 futures remained choppy on Tuesday despite the widening United States Goods Trade Deficit (Feb). Exports of goods witnessed a decline led by weak outgo of motor vehicles and parts along with consumer goods and capital goods, as reported by Reuters. Further imports of goods also slipped by 2.3%.

The US Dollar index (DXY) corrected firmly to near 102.40 as investors anticipate continuous pressure on US Consumer Price Index (CPI) through tight credit conditions from US banks amid a turbulent environment, which is prone to further financial instability.

Going forward, the release of the US Gross Domestic Product (GDP) (Q4) data will remain in focus. Tuesday’s annualized GDP is expected to remain steady at 2.7%. Apart from that, quarterly core Personal Consumption Expenditures (PCE) (Q4) might also remain anchored at 4.3%.

On the United Kingdom front, the Pound Sterling remained solid as Bank of England (BoE) Governor Andrew Bailey has remained doors open for further policy-tightening after hiking rates by 25 basis points (bps) last week to 4.25%. More rates would be welcomed by the BoE if there would be evidence of persistent inflation.

Meanwhile, overall shop inflation in the UK economy has climbed to 8.9% from the prior release of 8.4%, the highest reading in 18 years as reported by the British Retail Consortium (BRC). Rising food inflation has been a major catalyst behind stubborn UK shop inflation.

Analysts at Bank of America (BoA) are of the view that the BoE won’t hike rates further and will keep rates steady until 2024.