GBP/USD aims to recapture 1.2300 amid upbeat market mood, US/UK Inflation in focus

• GBP/USD is looking to recapture 1.2300 amid positive market sentiment.
• The US Dollar Index has dropped below 105.00 on expectations of a decline in US Inflation.
• Investors should not ignore the expectations of a surprise rise in UK inflation amid a solid food price rise.

The GBP/USD pair has picked demand after dropping to near 1.2260 in the Tokyo session. The Cable is aiming to recapture the round-level resistance of 1.2300 as investors’ risk appetite has improved dramatically ahead of the release of the United States inflation data.

The US Dollar index (DXY) has dropped below the round-level support of 105.00 as pre-US inflation anxiety among investors has faded. S&P500 futures are withstanding their Monday’s gains recorded on expectations of a decline in the inflationary pressures. On a broader note, an expected shift in the approach of the Federal Reserve (Fed) toward the pace of interest rates has underpinned optimism.

The street is expecting a decline in the US Consumer Price Index (CPI) led by a decline in gasoline prices and one-year consumer-inflation expectations. New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation declined to 5.2% in November from 5.9% in October, marking the biggest one-month decline on record. This has resulted in a decline in consensus for headline inflation to 7.3% and core inflation to 6.1%.

On the Pound Sterling front, investors are awaiting the release of the United Kingdom Employment and CPI data, which are due on Tuesday and Wednesday respectively. The quarterly Unemployment Rate (October) is seen higher at 3.7% against the former release of 3.6%. Apart from that, the crucial catalyst is the Average Earnings data. Quarterly Average Earnings excluding Bonus data are seen higher at 5.9% vs. the former release of 5.7%.

While the UK headline inflation is expected to decline to 10.9% from the former release of 11.1%. Investors should not ignore the expectations of a surprise rise in inflation as food price inflation has soared led by the food supply crisis due to shortages of labor and higher input costs.