GBP/USD rebounds firmly above 1.2460 as USD Index loses upside momentum

• GBP/USD has moved confidently above 1.2460 as the risk-off impulse is fading away.
• The USD Index has sensed a loss in the upside momentum as the Fed is expected to pause its rate-hiking spell ahead.
• UK Prime Minister Rishi Sunak might miss his pledge of halving UK inflation by the end of CY2023.

The GBP/USD pair has demonstrated a solid recovery and has scaled above 1.2460 in the Tokyo session. The Cable has recovered sharply amid a decline in the US Dollar Index (DXY) as the market mood is turning cheerful.

S&P500 futures have recovered the majority of losses generated in Asia despite investors keeping caution amid delay in United States debt-ceiling issues. Investors are worried that a default in augmenting obligated payments by the US Treasury will dampen its long-term outlook, millions of jobs, and overall production.

The USD Index has refreshed its five-week high at 102.75 despite the Federal Reserve (Fed) being expected to pause its interest rate-hiking spell ahead. Due to US inflation and Producer Price Index (PPI) softening and easing labor market conditions, Fed chair Jerome Powell has a reason to shift focus to the US economic outlook in order to avoid further calamity as investors are already scared of US banking jitters.

Tight credit conditions by the US regional banks have triggered problems for small firms as they are struggling to raise funds for operational activities. This has critically impacted tight US labor market conditions.

On the United Kingdom front, higher interest rates from the Bank of England (BoE) are failing to soften inflationary pressures. BoE policymakers have admitted that they made the mistake of underestimating the strength of persistence in inflationary pressures. The UK inflation is expected to reach the 2% inflation target not before early 2025. However, UK Prime Minister Rishi Sunak might miss his pledge of halving UK inflation by the end of CY2023.