GBP/USD aims an establishment above 1.2200 ahead of US forward inflation indicator

• GBP/USD is looking to shift its business above 1.2200 amid an improvement in investors’ risk appetite.
• The US Dollar will witness a prolonged decline after a policy change by the FOMC from Q1CY2023.
• Concerns over recession due to Fed’s higher interest rate peak guidance have sidelined S&P500.

The GBP/USD pair is aiming to shift its auction profile above the round-level hurdle of 1.2200 in the early Asian session. Earlier, the Cable displayed a firmer recovery after dropping to near 1.2100 on Wednesday. A responsive buying action from the market participants pushed the Cable significantly higher. Investors shrugged off United States data-inspired volatility and cheered the easing Covid-19 lockdown measures in China.

Stellar recovery in the risk appetite theme terminated a two-day recovery in the US Dollar index (DXY). The USD Index sensed extreme selling pressure while attempting to reclaim the critical resistance of 106.00. S&P500 remained sideways but signs of a rebound are available. Meanwhile, the 10-year US Treasury yields witnessed an intense sell-off and dropped to near 3.42%.

Concerns over higher borrowing costs expectations due to fresh strength in the United States economy led by firmer Nonfarm Payrolls (NFP) data and solid demand for the service sector are muddling investors. The market participants are in a fix on whether to cheer strength in the US economy or turn anxious over rising expectations for recession due to higher interest rate peak guidance by the Federal Reserve (Fed) policymakers.

Meanwhile, Economists at the National Bank of Canada believe that the greenback could recover some ground in the near term before sustaining a prolonged decline next year. But for the long term, a stage of prolonged decline will take place after a policy change from the Federal Open Market Committee (FOMC) in the first quarter of CY2023.

Going forward, investors will keep an eye on US five-year Consumer Inflation Expectations, which will release on Friday. Long-term inflation expectations are still anchored as the Fed has already accelerated its interest rates vigorously.