GBP/USD grinds lower past 1.2200 as inflation fears loom over UK, BoE’s Bailey, Fed’s Powell eyed

GBP/USD stays defensive around 1.2175 despite the latest rebound from the intraday low heading into Tuesday’s London open. In doing so, the Cable pair probes the previous two-day uptrend ahead of the key public appearances of Bank of England (BoE) Governor Andrew Bailey and the Federal Reserve (Fed) Chairman Jerome Powell.

The quote’s inability to rise further could also be linked to a pause in the US Treasury yields’ downside, as well as fading optimism over China. Additionally, fears that the UK inflation woes are strong enough to derail recently upbeat statistics seem to also weigh on Cable prices.

Reuters came out with the Barclays’ survey report while stating that British consumer spending in December lagged inflation, representing a sizeable fall in real-term expenditure, despite contributions from Christmas shopping and the men's soccer World Cup. On the same line, The Times quotes comments from the BoE Chief Economist Huw Pill as he signaled that higher natural gas prices, a tight labor market and global supply issues had created “the potential for inflation to prove more persistent”.

Elsewhere, comments from Atlanta Federal Reserve bank President Raphael Bostic could be held responsible for the rebound in the US Treasury yields as he said on Monday that it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, resolute to bring inflation down. Additionally, recently improving inflation expectations in the US, per the early forecasts from the Federal Reserve Bank of New York and St. Louis Federal Reserve, also weigh on the GBP/USD prices.

Furthermore, easing optimism surrounding China, mainly due to the Covid fears for the rural parts of the dragon nation, also seemed to have probed the GBP/USD buyers. Bloomberg cites the dearth of facilities and drugs, as well as experts’ fears of a spike in Covid cases in January, to challenge the previously positive sentiment.

While portraying the mood, the S&P 500 Futures remain lackluster around 3,915, down 0.20% intraday, whereas the US 10-year Treasury yields seesaw around a three-week low marked the previous day, close to 3.52% by the press time.

Looking forward, GBP/USD traders should pay attention to the central bankers’ comments from the Riksbank panel discussion and look for signs of aggressive rate hikes from the Fed to aim for further weakness.

Technical analysis

Despite the latest pullback, the 200-day Exponential Moving Average (EMA) puts the floor under the GBP/USD prices around 1.2110, a break of which could convince short-term bears to take control.