GBP/USD stays with gains around 1.2180 despite higher consensus for US PCE Inflation

• GBP/USD is holding its intraday gains around 1.2180 as DXY has surrendered a five-day cushion.
• A higher consensus for US PCE is compelling for more rate hikes further.
• The BOE may announce a 50 bps rate hike in its monetary policy meeting next week.

The GBP/USD pair is displaying back and forth moves in a narrow range of 1.2168-1.2183 in the Asian session. The cable has remained in the grip of bulls for the past two weeks after the US dollar index (DXY) shifted into a negative trajectory on lower long-run inflation expectations. Meanwhile, the DXY has surrendered around 3% and is gearing up for more downside as signs of recession have bolstered in the US.

The DXY has violated the five-day support of 106.06 and a fresh monthly low looks imminent ahead. In today’s session, the release of the US Personal Consumption Expenditure (PCE) Inflation will be the show-stopper event. Federal Reserve (Fed)’s preferred inflation indicator is expected to climb to 6.7% from the prior figure of 6.3%.

No doubt, more policy tightening is on cards as price pressures have not displayed exhaustion signals yet. As per the commentary from Fed chair Jerome Powell, a target for interest rate is 3.5% by the end of 2022. This indicates that the room for more rate hikes in total by 100 basis points (bps) as current rates stand at 2.25-2.50%.

On the UK front, investors‘ focus will shift to interest rate decisions by the Bank of England (BOE). BOE Governor Andrew Bailey is likely to elevate its interest rates further as the inflation rate has climbed to 9.4% and has not shown any sign of hitting a peak yet. The ongoing upside momentum in the price pressures in the UK could escalate to a two-digit figure swiftly.