GBP/USD aims an establishment above 1.2050 as focus shifts to US inflation

  • GBP/USD is expected to display more gains above 1.2050 ahead of US CPI.
  • Lower Average Hourly Earnings and higher US CPI will bring a slump in the aggregate demand.
  • Political turmoil in the UK economy has not strengthened the pound bears.

The GBP/USD pair is aiming northwards as the opening hour is displaying the strength of the pound bulls. The cable is expected to extend its gains after overstepping the critical hurdle of 1.2050 amid exhaustion in the US dollar index (DXY).

The DXY remained vulnerable on Friday as a failure to sustain near the 19-year high of 107.79 resulted in a steep fall. The DXY closed near the critical support of 106.84 and more downside is expected as lower Average Hourly Earnings are warranting a slump in the aggregate demand ahead.

A higher inflation rate in the US economy should be met by higher ‘paychecks’ by the households as lower earnings may force the households to cope with lower consumption and savings. This may result in lower aggregate demand by the households, which may result in lower Gross Domestic Product (GDP). The occurrence of the same will affect the US economy in a significant manner.

Going forward, investors’ focus will remain on the US Consumer Price Index (CPI), which is due on Wednesday. The US CPI is seen at 8.7%, higher than the prior print of 8.6% on an annual basis. However, the core CPI is seen lower at 5.7% vs. 6% recorded on a yearly basis.

On the pound front, the political turmoil has not strengthened the sterling bears. Former British Finance Minister Rishi Sunak, on Friday, showed his intentions of running in the contest to replace Prime Minister Boris Johnson. The news wires from the UK’s administration state that the ongoing stance of political instability won’t affect the progression of the Northern Ireland Protocol (NIP), as per Reuters.

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