GBP/USD grapples with lows as key inflation data looms ahead

• GBP/USD is tangled up in the 1.2200 handle ahead of key CPI inflation prints.
• US inflation data might miss expectations, paving the way for rate cut hopes.
• Pound Sterling traders are hoping for a rebound in UK GDP growth.

GBP/USD is mired in near-term technical consolidation near the 1.2200 handle as key inflation metrics from the US and UK growth figures loom large through the midweek sessions. US Consumer Price Index (CPI) inflation is expected to accelerate, though a softening in US Producer Price Index (PPI) number has sparked a fresh round of investor hopes that inflation will not only cool, but do so enough to force a fresh bout of rate cutting rhetoric from the Federal Reserve (Fed).

Headline PPI inflation rose to 3.3% YoY versus the previous figure of 3.0%, while core PPI accelerated to 3.5% YoY compared to the previous 3.4%. While both figures came in below expectations, the print wasn't quite the boon to investor sentiment that many were hoping for as inflation pressures continue to simmer away in the background, albeit at a slightly lower boil than economists forecast. With inflation metrics still trending well above annualized Federal Reserve (Fed) targets, PPI figures printing below forecasts is a distinction without a difference when it comes to expectations of interest rate decreases.

UK CPI inflation metrics will kick off the Wednesday market session, and median market forecasts expect a flat print of 2.6% YoY in the non-preliminary figure. On the US side, CPI is forecast to accelerate to 2.9% YoY from the previous 2.7%, and still holding well above the Fed's 2.0% annual inflation target.

GBP/USD price forecast

Cable bidders were able to turn things around and keep bids nailed to the 1.2200 handle on Tuesday, but the pair is still drifting deep into bear country after tapping a fresh 15-month low earlier this week. The pair is down nearly 4% in January alone, and GBP/USD is on pace to close in the red for a fourth straight month if things don't take a bullish turnaround soon.

GBP/USD daily chart