GBP/USD hangs near multi-month low, looks to UK CPI ahead of central bank event risks

• GBP/USD remains confined in a familiar trading band near a multi-month low.
• Expectations that the BoE is nearing the end of its rate-hiking cycle cap gains.
• Traders now look to the UK CPI for some impetus ahead of the FOMC decision.

The GBP/USD pair continues with its struggle to register any meaningful recovery and extends its consolidative price moves for the third successive day on Wednesday. Spot prices trade below the 1.2400 mark during the Asian session and remain well within the striking distance of its lowest level since early June touched on Monday.

Traders now seem reluctant and opt to wait on the sidelines ahead of this week's key data/central bank event risks, starting with the release of the latest UK consumer inflation figures later today. The headline UK CPI is anticipated to have accelerated to 7.1% in August from 6.8% previous, while the core reading, which excludes seasonally volatile food and energy prices, is seen edging lower to 6.8% YoY rate from 6.9% in July. A surprisingly higher print will suggest that wage pressures are still feeding through into higher prices, which, in turn, should benefit the British Pound and provide a goodish lift to the GBP/USD pair.

The immediate market reaction, however, is more likely to remain limited as the focus remains glued to the Bank of England (BoE) monetary policy meeting on Thursday, against the backdrop of diminishing odds for more aggressive policy tightening. In fact, BoE Governor Andrew Bailey had told lawmakers earlier this month that the central bank is now "much nearer" to ending its run of interest rate increases. Furthermore, reviving recession fears, along with signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle soon, which should cap the upside for the GBP/USD pair.

In the meantime, investors on Wednesday will also look to the highly-anticipated FOMC policy decision, due to be announced later during the US session. The Federal Reserve (Fed) is expected to keep interest rates unchanged at the end of a two-day meeting, though the markets have been pricing in the possibility of one more 25 bps lift-off by the end of this year. Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized for cues about the future rate-hike path, which will influence the USD and provide a fresh impetus to the GBP/USD pair.

Technical levels to watch