GBP/USD extends fall towards 1.2200 on mixed UK inflation data, Fed’s Powell in focus

  • GBP/USD takes offers to refresh daily low as UK CPI matches upbeat forecasts.
  • UK CPI rises 9.1% YoY, Core CPI ease below market expectations.
  • Mixed inflation numbers, BOE’s failures to impress bulls weigh on the cable prices.
  • Fed Chair Powell’s testimony will be crucial amid recession fears.

GBP/USD renews intraday low to 1.2221 as the UK inflation numbers fail to lure bulls. That said, the risk-aversion wave and fears of a recession in Britain, not to forget doubts over the Bank of England’s (BOE) capacity to restore economic optimism in the UK, also weigh on the Cable pair during early Wednesday morning in Europe.

That said, the UK’s Consumer Price Index (CPI) matches 9.1% YoY forecasts versus 9.0% prior. However, the Core CPI dropped to 5.9%, below 6.0% market consensus and 6.2% previous readouts.

Also read: Breaking: UK annualized inflation rises by 9.1% in May vs. 9.1% expected

It’s worth noting that the sluggish inflation numbers allow the BOE to continue on its 0.25% rate hike trajectory, which in turn has recently gained the market’s criticism and drowned the GBP/USD prices.

Further, the UK’s Confederation of British Industry (CBI) marked an unexpected softening in price pressures during June’s data. The Domestic Price Expectation sub-index of the survey declined to its lowest level since September at +58 in June from +75 in May, per Reuters.

Additionally, fears of a £470 contraction in the British workers’ real pay due to the Brexit, as signaled by the Resolution Foundation think tank and London School of Economics also drown the GBP/USD prices.

Above all, the market’s anxiety ahead of Fed Chair Jerome Powell’s Testimony and recession woes are the key downside catalysts for the GBP/USD prices.

Amid these plays, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest. The sour sentiment helps the US Dollar Index (DXY) to refresh its intraday high around 104.65, rising for the first day in three, by the press time.

Moving on, Fed Chair Powell’s ability to tame recession fears and justify the biggest rate hike since 1994 is necessary for the GBP/USD bears to keep reins.

Technical analysis

GBP/USD bears justify the pair’s sustained pullback from the 21-day EMA, around 1.2360 by the press time, to direct immediate fall towards May’s low of 1.2155. Following that, the 1.2100 threshold and the 1.2000 psychological magnet will lure the bears. However, RSI conditions may challenge the pair’s further downside around the yearly bottom of 1.1933.

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