GBP/USD builds a cushion around 1.2040, volatility looks persistent ahead of US GDP

• GBP/USD is gauging an intermediate cushion around 1.2040, however, the overall market mood is still negative.
• Fed policymakers are still reiterating higher interest rates for a longer period to achieve the 2% inflation target.
• The annualized US GDP Q4 data is seen stable at 2.9%.

The GBP/USD pair has sensed a pause in the downside momentum after dropping to near 1.2040 in the early Asian session. It would be early to consider a loss in the downside momentum for the Cable as higher volatility might stay ahead of the release of the preliminary United States Gross Domestic Product (GDP) data for the fourth quarter of CY2022. The annualized economic data is seen stable at 2.9%

The Cable witnessed an intense sell-off in the late New York session after the release of the hawkish Federal Open Market Committee (FOMC) minutes. Federal Reserve (Fed) chair Jerome Powell and his mates are still reiterating higher interest rates for a longer period to drag the Consumer Price Index (CPI) to near 2% target.

Fed policymakers are worried that China’s reopening after the rollback of lockdown curbs and ongoing Russia’s invasion of Ukraine advocate upside risks in inflation. Domestically, a shortage of labor could propel a higher wage price index ahead.

Meanwhile, S&P500 futures have shown a recovery in the Asian session. The 500-US stocks basket futures have recovered their entire losses shown on Wednesday. A sense of optimism has been observed in the overall risk aversion theme.

The optimism could fade as President Joe Biden told that it was a "big mistake" for Russian President Vladimir Putin to temporarily suspend Russia's participation in the last remaining nuclear arms treaty between the two countries. Earlier, US Biden announced “Russia was suspending its participation in the New START treaty, which implements caps on the number of nuclear weapons deployed by each country and inspections of nuclear sites,” as reported by ABC News.

The Pound Sterling looks struggling again as the recovery in manufacturing activities is not sufficient enough to avoid the recession ahead. The preliminary United Kingdom manufacturing activities remained upbeat at 49.2, however, a figure below 50.0 is considered a contraction. UK households are struggling to address their usual demand due to higher food inflation, which is impacting their confidence in the economic prospects.