GBP/USD moves downward near 1.2720 ahead of UK CPI, PPI data

• GBP/USD edges lower ahead of CPI, PPI data from the United Kingdom.
• UK CPI (MoM) is expected to rise by 0.01%, while yearly inflation may ease at 4.4%.
• US Dollar retraces its recent losses amid a dovish sentiment surrounding the Fed.

GBP/USD retraces its recent gains registered in the previous session, edging lower near 1.2720 during the Asian session on Wednesday. The GBP/USD pair receives downward pressure ahead of the slew of economic data releases from the United Kingdom (UK) on Wednesday.

UK Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Price Index for November are scheduled to be released later in the day. The monthly consumer inflation is expected to grow by 0.01% from flat 0.0% prior. However, the year-on-year report could show an ease at 4.4% against the previous reading of 4.6%.

The Bank of England (BoE) maintained the policy rate at a 15-year high of 5.25% during its December meeting. Given the somber economic outlook and more relaxed conditions in the labor market, market participants factor in expectations for four rate cuts, starting from June 2024. The anticipated trajectory suggests the key rate could decrease from 5.25% to as low as 4.25% by the end of the next year.

BoE Deputy Governor Sarah Breeden expressed on Tuesday that it would be crucial for policy to remain at restrictive levels to curb inflation pressures. While emphasizing that neither scenario represented a forecast, she noted that the high inflation scenario was "clearly the more costly". Breeden's comments align with those of Governor Andrew Bailey, who has also emphasized the importance of keeping policy restrictive.

The US Dollar Index (DXY) faced a decline in the previous session, trading higher around 102.20, by the press time. The US Dollar (USD) attempts to retrace its recent losses amid a dovish sentiment surrounding the US Federal Reserve (Fed), indicating the potential for monetary policy easing in early 2024.

US Housing Starts exceeded expectations at 1.56 million, surpassing the market consensus of 1.36 million. However, Building Permits slightly fell to 1.46 million, just below the forecast of 1.47 million. Investors will likely monitor Existing Home Sales Change and the CB Consumer Confidence survey on Wednesday.