GBP/USD stays defensive near 1.2050 as risk aversion precedes US, UK inflation

• GBP/USD holds lower ground amid the broad US Dollar rebound.
• Optimism surrounding UK workers, upbeat British GDP put a floor under the Cable price.
• Fears of US-China tussle, hawkish Fed and cautious mood ahead of key data favor US Dollar despite inactive yields.

GBP/USD clings to mild gains near 1.2050 heading into Monday’s London open as traders brace for this week’s key data from the UK and the US. Also exerting downside pressure on the Cable pair is the risk-off mood and the firmer US Dollar. However, hopes of overcoming the British workers’ strikes and recently firmer data from the UK seem to put a floor under the prices.

During the weekend, Reuters rolled out the news suggesting that British firms are ready to refill staffing gaps even at the cost of the biggest pay rises since 2012. The news could help the UK policymakers overcome multi-week-old workers’ strikes and help the economy avoid recession, as well as propel the inflation and help the Bank of England (BoE) to remain hawkish. However, this week’s UK jobs report will be important to watch for clear directions.

It should be noted that the last week’s UK growth numbers helped British Chancellor Jeremy Hunt to mention that “the fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared."

On the other hand, the market’s risk-off mood underpinned the US Dollar’s run-up amid mildly positive Fedspeak, especially after Friday’s strong US Consumer Sentiment and inflation expectations. During the weekend, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023. However, the policymaker did mention, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing.”  His comments were mostly in line with Fed Chair Jerome Powell’s cautious optimism and hence challenge the US Dollar buyers.

Against this backdrop, US stock futures fade the previous day’s corrective bounce while the Treasury bond yields remain sluggish around the multi-day high marked on Friday, which in turn helped the US Dollar Index (DXY) to grind higher after a two-week uptrend.

Looking forward, Tuesday’s UK employment numbers will precede US Consumer Price Index (CPI) to direct short-term GBP/USD moves. Following that, Wednesday’s UK inflation numbers data will be important for clear directions. Given the comparatively more hawkish comments from the Bank of England (BoE) officials, than the Fed policymakers, the GBP/USD price may witness recovery in case the US CPI disappoints.

Also read: GBP/USD Weekly Forecast: For how long can 200 DMA hold the fort? Focus on US/UK inflation

Technical analysis

Although the failure to cross the 50-DMA hurdle surrounding 1.2185 joins bearish MACD signals to favor GBP/USD sellers, a daily closing below the three-month-old ascending support line, close to 1.2020, appears necessary to convince bears.