GBP/USD rebounds from 1.2200 on improved risk appetite, UK GDP in focus

• GBP/USD has picked bids around 1.2200 after a minor correction on the soaring market mood.
• Although the US inflation rate has been trimmed, the journey towards desired inflation is far from over.
• A downbeat consensus for UK GDP could conclude the run-up of pound bulls.

The GBP/USD pair has sensed buying interest after correcting to near the critical support of 1.2200. The asset is aiming to recapture its six-week high at 1.2293 as investors’ risk appetite has improved dramatically after a significant decline in the US inflation rate.

The release of the plain-vanilla US Consumer Price Index (CPI) at 8.5%, significantly lower than the forecasts of 8.7%, and the former figure of 9.1% has soared the market mood. The market participants were cautious as the Federal Reserve (Fed) was expected to remain harsh on interest rates after the release of the upbeat US Nonfarm Payrolls (NFP). Well, hawkish bets are still not down as the Fed has a long way to go to reach the desired inflation.

Also, comments from Neel Kashkari that “He is happier to see inflation surprised to the downside, the Fed is far far far away from declaring victory on inflation” confirms the continuation of a hawkish stance by the fed. Adding to that, Fed policymaker sees interest rates to 3.9% by the end of this year and at 4.4% by next year.

On the UK front, the pound bulls are awaiting the release of the Gross Domestic Product (GDP), which will release on Friday. As per the preliminary data, the UK economy has shrunk by 0.2% in this quarter vs. an expansion of 0.8% reported earlier. On an annual basis, the economic data is likely to drop to 2.8% from the former figure of 8.7%.