GBP/USD GAUGES INTERMEDIATE SUPPORT ABOVE 1.2300 AMID SUBDUED USD INDEX

GBP/USD is finding an immediate cushion above 1.2300 as USD Index displays a subdued performance.

US Treasury yields have fallen to fresh multi-month lows amid a decline in inflation projections.

Minor softening of UK inflation is insufficient to trim hawkish BoE bets.

The GBP/USD pair is looking for intermediate support around 1.2320 in the Asian session. The cable is aiming to resume its upside journey as the US Dollar Index (DXY) is displaying a subdued performance, failing to capitalize on Wednesday’s V-shape recovery. Also, falling US Treasury yields have weighed on the USD Index.

The return generated by US Treasury bonds was weighed down by solidifying signs of softening inflation. The 10-year US Treasury yields recorded a fresh four-month low below 3.36%. And, the two-year US Treasury yields dropped to a fresh three-month low near 4.07%. The lower-than-projected United States Producer Price Index (PPI) report and weaker retail demand have bolstered the odds of deceleration in the pace of further policy tightening by the market participants.

Market sentiment is still not supporting the risk-perceived currencies amid the weaker risk-taking capacity of the market participants. S&P500 futures are facing heat amid uncertainty over US-China trade relations.

China’s Vice Premier Liu He said in a meeting with US Treasury Secretary Janet Yellen on Wednesday, “US-China relationship is highly consequential,” adding that he “hopes they can work together.” He further added that “Two countries need ‘serious communication’ and coordination on climate change, macroeconomic issues, and others.”

On the United Kingdom front, inflationary pressures have softened as per the December’s Consumer Price Index (CPI) report, released on Wednesday. The headline inflation has been eased to 10.5% on an annual basis and the core CPI that excludes oil and food prices remained steady at 6.3%. The extent of the decline in the inflation rate is not sufficient to infuse confidence among the market participants that UK inflation is easing on a promising note. Therefore, investors should brace of continuation extreme hawkish monetary policy by the bank of England (BoE) ahead.