GBP/USD grinds near intraday top on mixed UK Inflation report, Fed eyed

• GBP/USD seesaws around six-month high after UK inflation data.
• UK CPI retreats from 41-year high to 10.7% YoY in November, firmer RPI defends bulls.
• The cautious mood ahead of FOMC Meeting restricts GBP/USD reaction to data.
• Fed is up for 50 bps rate hike, which could favor bulls more after recently firmer UK inflation data.

GBP/USD remains sidelined near the intraday high even as the UK’s headline inflation numbers retreat in November. That said, the Cable pair makes rounds to 1.2370 during the initial hours of Wednesday’s London trading.

UK’s headline Consumer Price Index (CPI) eased from the 41-year high of 11.1% to 10.7% YoY in November, compared to the 10.9% YoY market forecast. Further details suggest that the Core CPI, which excludes volatile food and energy items, marked 6.3% yearly figure versus expectations to reprint the 6.5% YoY number. A surprise factor was the Retail Price Index (RPI) which rose past 13.8% YoY expected to 14.0% during the stated month.

Also read: Breaking: UK annualized inflation drops to 10.7% in November vs.10.9% expected

It should be observed that the prevalence of the Federal Open Market Committee (FOMC) meeting on Wednesday, as well as Thursday’s Bank of England (BOE) monetary policy event, restricts the GBP/USD pair’s reaction to the key UK inflation data.

On Tuesday, the Bank of England (BoE) released its latest Financial Stability Report (FSR) and said, "Widespread signs of financial difficulty among UK households are yet to emerge". Also posting threats to the Cable pair’s upside is the mixed UK jobs report published the previous day. That said, the UK’s Office for National Statistics (ONS) stated that the UK’s monthly Claimant Count Change marked a positive surprise of 30.5K in November versus -13.3K expected and -6.4K prior. Further, the Unemployment Rate matched the 3.7% market forecast during the three months to October. It should be noted that the upbeat average earnings seemed to have favored the GBP/USD buyers.

It’s worth noting that the GBP/USD pair refreshed a multi-day high on Tuesday after the US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

Having witnessed the initial reaction to the UK’s inflation data, GBP/USD traders will pay attention to how the US Federal Reserve (Fed) will act during today's FOMC meeting. The market expects 0.50% rate hike and hints of easing strings of the tighter monetary policy starting from 2023. However, any hawkish surprise won’t hesitate to drag the quote from a multi-day top.

Other than the BOE versus Fed drama, headlines surrounding China also become important for additional direction for the GBP/USD pair. The reason could be linked to the hopes of more stimulus from China, as officials from the Asian Development Bank (ADB) and the International Monetary Fund (IMF) appear less convinced by the dragon nation’s easing of the Zero-Covid policy and continue to highlight economic fears.

Technical analysis

GBP/USD buyers remain hopeful unless the quote offers a daily closing below the August month’s high near 1.2290.