GBP/USD declines towards 1.2500 amid risk-off impulse, US Inflation in focus
- GBP/USD is expected to tumble further on advancing hopes of a bumper rate hike by the Fed.
- Lower growth forecasts and higher sky-rocketing inflation levels will keep pound bulls on the tenterhooks.
- Higher US NFP has provided more liberty to the Fed to dictate more quantitative tightening.
The GBP/USD pair is scaling lower after failing to sustain above 1.2540 in the Asian session. The greenback bulls are dragging the asset towards the psychological support of 1.2500 as negative market sentiment has trimmed the risk appetite of investors. On a broader note, the cable is juggling in a range of 1.2430-1.2600 over the past two weeks.
Uncertainty is advancing in the FX domain as investors’ focus has shifted to the US inflation, which is due on Friday. The annual Consumer Price Index (CPI) is expected to remain unchanged at 8.3% while the core CPI that excludes food and energy will slip to 5.9% vs. the prior print of 6.2%. The extent of deviation in the US CPI will have a significant impact on the interest rate decision by the Federal Reserve (Fed) next week.
The upbeat US Nonfarm Payrolls (NFP) released last week has already bolstered the odds of a jumbo rate hike by the Fed. Efficiency in the employment generation process by the US administration has provided more room for the Fed to stretch the benchmark rates. Now, higher price pressures will compel the Fed to elevate interest rates as mounting inflationary pressures will depreciate the paychecks of households in the US vigorously.
On the pound front, lower growth forecasts amid sky-rocketing inflation are cornering the pound bulls. As per the British Chambers of Commerce, UK economic growth will 'grind to a halt and 10% inflation is on the way. Also, the economy is not expected to display any GDP expansion in 2023.