Focus on UK Inflation, BoE's Bailey, and Fed Minutes as GBP/USD Attempts to Regain 1.2450

GBP/USD posts its first daily advance in three days as it adheres to modest gains near 1.2420 ahead of Wednesday's crucial UK inflation data and a speech by Bank of England (BoE) Governor Andrew Bailey. In doing so, the Cable pair recovers from its lowest levels in a month as a result of the US Dollar's decline and the market's consolidation ahead of the most important data/events.

As of press time, the US Dollar Index (DXY) struggles to extend two-day gains at the highest levels in nine weeks, grinding near 103.50. Notably, recent optimism among GBP/USD purchasers has been fueled by fears of the US debt ceiling expiration, positive UK Consumer Price Index (CPI) inflation data, and a speech by BoE's Bailey.

The lack of progress in talks to avoid the US debt ceiling expiration and concerns that the US may mark a 'catastrophic' default have weighed on market sentiment in recent weeks, which has weighed on the US Dollar. Recently, via Reuters, US House Speaker Kevin McCarthy crossed cables, indicating that no agreement on the debt ceiling extension will be reached today, but reiterating previous optimism that an agreement will be reached before June 1. Previously, Washington disseminated information indicating that the US Treasury has instructed multiple agencies to delay payment demands.

In contrast, firmer U.S. data and Fed hawkishness weigh on Cable prices. In spite of this, preliminary May PMI data indicated that the US Services sector continues to outpace the manufacturing sector, propelling the Composite PMI to its highest level in a year.  Moreover, the most recent comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin, and San Francisco Fed President Mary C. Daly supported the demands for higher Fed rates while citing inflation woes, thereby boosting the odds of a June rate hike. Despite a decline in US Treasury bond yields, the same factor prevents the Fed from cutting interest rates, allowing the dollar to remain stronger.

In the United Kingdom, the Monetary Policy Hearings of the Bank of England defended the policymakers' willingness to raise interest rates by citing inflation concerns. Bailey of the BoE stated, "I cannot say whether we are close to or at the peak." In a similar vein, BoE Chief Economist Huw Pill stated that inflation expectations for the extended term have not deviated from the target.

In the midst of these moves, the BoE's hawkish bias regains attention and prompts Sterling-Pound sellers ahead of the crucial UK inflation data for April, which is likely to reveal a mixed picture. In spite of this, Wall Street benchmarks closed in the red, whereas S&P 500 Futures have recently posted modest gains.

Moving forward, the UK CPI for April, which is anticipated to decline from 10.1% to 8.2% YoY, will be the immediate catalyst to monitor for clear direction before BoE's Bailey and the minutes of the most recent Federal Open Market Committee (FOMC) Monetary Policy Meeting.