GBP/USD subdued in mid-1.2300s pre-US CPI, despite negative Brexit headlines

• GBP/USD is subdued in the mid-1.2300s in the run-up to the release of US CPI data.
• Sterling has been resilient to increased negative Brexit newsflow and forecasts for a UK recession in H2 2022.
• Some are saying a lot of bad news is already in the price, but political risk limits rebound potential.

Despite the increasingly concerning tone to Brexit newsflow, with the EU threatening to revoke its trade deal with the UK should the latter unilaterally scrap the Northern Ireland Protocol (as it has been jawboning about this week), and despite a UK-based economic think tank forecasting that the UK will be in a technical recession in the second half of this year, GBP/USD continues to trade in a stable fashion in the mid-1.2300s and is well with recent intra-day ranges.

After recent big moves to the downside, some are arguing that a lot of pessimism about the UK economy (and thus the outlook for BoE monetary policy tightening), is already in the price, limiting the scope for further near-term downside in cable. Meanwhile, subdued FX market trade in the run-up to key US Consumer Price Inflation data at 13:30 BST should not be too surprising. Traders tend to refrain from placing big bets ahead of big, potentially market-moving events.

US inflation data is expected to moderate versus recent months and some are saying this could induce some USD profit-taking as traders scale down the excessiveness of recent hawkish Fed bets. That could offer GBP/USD a modest short-term lift, perhaps back into the 1.2400s. But as political jawboning about the NIP and post-Brexit trade deal from the UK and EU gets louder, this could prevent sterling from making any further substantial gains.