GBP/USD grinds near monthly high below 1.2200 ahead of US PCE Inflation

• GBP/USD buyers struggle to keep reins around one-month high.
• UK politics gain major attention as the first Conservative Party hustings favor Truss.
• US fell into a “technical recession” and pushed back the Fed hawks, exerting downside pressure on the USD.
• US Core PCE Price Index eyed for fresh impulse amid firmer inflation expectations.

GBP/USD seesaws near the one-month high as bulls and bears jostle ahead of the key US data, as well as due to the mixed signals, during Friday’s Asian session.

That said, the Cable pair rose during the last two consecutive days on broad US dollar weakness. It’s worth noting that the political jitters in the UK and Brexit woes, as well as the US dollar’s consolidation ahead of the key US inflation data, are likely weighing on the GBP/USD prices.

The market’s expectations of no more aggressive rate hikes from the Fed, backed by the US Q2 Gross Domestic Product (GDP) release, appear to favor the US dollar weakness. On the same line are the US central bank’s neutral rate chatters and Fed Chairman Jerome Powell’s hopes of recovery.

It should be noted that the Flash readings of the US Q2 GDP printed -0.9% Annualized figure versus 0.5% expected and -1.6% prior. With the second consecutive negative GDP print, the US fall into a “technical recession”, which in turn probes the Fed hawks and exerts downside pressure on the US dollar.

However, inflation expectations data, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED), refreshed the monthly high to 2.48% and renewed fears of higher Fed rates during the late Thursday, which in turn weighed on the GBP/USD prices.

At home, the first of 12 political hustings for Conservative Party leadership didn’t go well in favor of Rishi Sunak as policymakers accused him of stabbing Boris Johnson. On the other hand, Liz Truss gets an uncomfortable question on the monarchy, per Sky News. Furthermore, a survey from the British Chambers of Commerce (BCC) mentioned that a survey found that quarter of 2600 exporters had suffered a fall in exports and another 46% reported no change, reported The Guardian.

Against this backdrop, the Wall Street benchmarks closed positive but the Treasury yields slumped and the US Dollar Index (DXY) refreshed its multi-day low while extending the post-Fed losses.

Moving on, the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, expected 0.5% MoM for July versus 0.3% prior, will be important to watch for fresh impulse.

Technical analysis

A clear upside break of the 1.5-month-old descending trend line, now support around 1.2075, favors the GBP/USD buyers to aim for the 50-DMA hurdle surrounding 1.2225.