GBP/USD looks to regain 1.2450, focus on UK inflation, BoE’s Bailey and Fed Minutes

GBP/USD prints the first daily run-up in three as it clings to mild gains near 1.2420 ahead of the key UK inflation data and a speech from Bank of England (BoE) Governor Andrew Bailey, scheduled for Wednesday. In doing so, the Cable pair recovers from the lowest levels in a month amid the US Dollar’s retreat, as well as due to the market’s consolidation ahead of the key data/events.

US Dollar Index (DXY) struggles to extend two-day advances at the highest levels in nine weeks, grinds near 103.50 by the press time. It’s worth noting that the fears of the US debt ceiling expiry join the upbeat concerns from the UK Consumer Price Index (CPI) inflation data and a speech from BoE’s Bailey keep the GBP/USD buyers hopeful of late.

Among the key catalyst that weighs on the US Dollar are the lack of progress in the talks to avoid the US debt ceiling expiration and fears that the US may mark the ‘catastrophic’ default weighed on the market sentiment of late. Recently, US House Speaker Kevin McCarthy crossed wires, via Reuters, while suggesting no deal on the debt ceiling extension today but repeating previous optimism that they will get an agreement before June 01. Previously, Washington rolled out news stating the US Treasury has asked multiple agencies if they can delay the payment demands.

Alternatively, firmer prints of the US data and hawkish Fed concerns weigh on Cable prices. That said, preliminary figures of the May monthly PMIs signaled that the US Services sector keeps outgrowing the manufacturing ones and fuelled the Composite PMI figure to the highest levels in a year.  Further, the latest comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly backed the calls for higher Fed rates while citing the inflation woes, which in turn propelled the bets on the Fed rate increase in June. The same push back the Fed rate cut and allows the US Dollar to remain firmer despite a retreat in the US Treasury bond yields.

At home, BoE Monetary Policy Hearings again defended the policymakers’ readiness to lift the rates while citing the inflation woes. "I can't tell you whether we're near to the peak, I can't tell you whether we are at the peak," said BoE’s Bailey. On the same line, BoE Chief Economist Huw Pill said that longer-term inflation expectations have not drifted away from the target.

Amid these plays, the hawkish bias about the BoE regains attention and prods the Sterling Pound sellers ahead of the key UK inflation data for April, likely to print a mixed picture. That said, Wall Street benchmarks saw the red but the S&P 500 Futures seem to struggle for clear directions, marking mild gains of late.

Moving on, the UK CPI for April, expected to ease from 10.1% to 8.2% YoY, will be the immediate catalyst to watch for clear directions ahead of BoE’s Bailey and Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting.

Technical analysis

GBP/USD recovery remains elusive unless the quote stays below the 50-DMA hurdle of around 1.2430.