GBP/USD gains momentum and climbs above 1.2200 ahead of UK inflation report

• GBP/USD registers a 0.42% gain on Wall Street, showcasing a risk-on mood with gains between 0.90% and 1.02%.
• The UK's annual CPI is projected to dip slightly, but monthly figures are expected to rise, fueling speculations of another BoE rate hike.
• BoE interest rate probabilities hover around a 50% chance for a 25 bps hike this cycle.

The British Pound (GBP) advances versus the US Dollar (USD) during the North American session, registering gains of 0.42%, on a risk-on impulse while expectations of a sightly high UK inflation report underpin the GBP/USD. At the time of writing, the pair exchanges hands at 1.2200 after bouncing from a daily loss of 1.2128.

GBP/USD rises amid risk-on mood awaiting UK CPI data

As seen by Wall Street registering gains between 0.90% and 1.02%, risk appetite improved. The UK Consumer Price Index (CPI) is expected to dip annually from 6.7% to 6.6%, while core CPI is foreseen at 6%, down from September’s 6.2%. Nevertheless, monthly CPI figures are expected to jump from 0.3% to 0.5%, which would increase speculations for another rate hike by the Bank of England (BoE). Interest Rate probabilities on the BoE remain at around a 50% chance of a 25 bps hike this cycle after the last meeting witnessed a pause on a split vote 5-4.

On the US front, the Chicago Fed President Austan Goolsbee and Philadelphia Fed Patrick Harker remained dovish amid a busy week for Fed policymakers. Harker commented that the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.

On the data front, the New York Empire State Manufacturing Index for October plunged compared to September’s data, but it came above expectations as new orders dipped, while fewer companies indicated higher prices received, a sign of deflation in the economy.

Given the fundamental backdrop, UK inflation data exceeding estimates would underpin the GBP/USD above the 1.2200 figure. On the flip side, sentiment deterioration and lower inflation could spur flows toward the safe-haven status of the Greenback.

GBP/USD Price Analysis: Technical outlook

The daily chart portrays the GBP/USD as bearish-biased, with the 50-day moving average (DMA) about to cross below the 200-DMA and form a death-cross that could pave the way for further downside. However, if the significant breaks above the latest cycle high seen on October 11 at 1.2337, that would expose 1.2400; otherwise, the GBP/USD could drop below 1.2100 and test the October 4 low of 1.2037 before plunging to 1.2000.