GBP/USD aims to recover from losses near 1.2200, focus on UK CPI

• GBP/USD recovers from the recent losses ahead of UK CPI.
• The monthly inflation could fuel speculation for another interest rate hike by BoE.
• US Dollar encounters difficulties amid dovish remarks from several Federal Reserve members.

GBP/USD retraces the recent gains registered in the previous session, trading lower around 1.2200 during the Asian session on Tuesday. The pair moves in consolidation possibly due to the market indecision about the trajectory of the US Federal Reserve's (Fed) monetary policy.

On Monday, the Rightmove House Price Index (MoM) increased to 0.5% in October from the previous 0.4%. The yearly data showed that residential property prices declined by 0.8% compared to the 0.4% decline in the previous report.

The UK Consumer Price Index (CPI) is anticipated to show a slight dip in the annual figure, moving from 6.7% to 6.5%. Core CPI is expected to come in at 6%, down from September's 6.2%. Despite this moderation in the annual figures, there is an expectation for a notable increase in the monthly CPI, rising from 0.3% to 0.4%.

Such an uptick in the monthly inflation figures could fuel speculations for another interest rate hike by the Bank of England (BoE). Currently, interest rate probabilities for the BoE remain around a 50% chance of a 25 basis points hike in this cycle.

The US Dollar Index (DXY) attempts to retrace the recent losses, trading slightly higher around 106.30 at the time of writing. However, the US Dollar (USD) faced downward pressure, and this can be attributed to the dovish comments from various Federal Reserve officials, indicating that no further interest rate hikes are expected for the remainder of 2023. The dovish stance reflects a cautious approach by the central bank, highlighting a reluctance to tighten monetary policy in the current economic context.

Federal Reserve Bank of Philadelphia President Patrick Harker reinforced this sentiment by suggesting on Monday that the central bank should refrain from creating new economic pressures by increasing the cost of borrowing. Harker further expressed the view that unless there is a significant shift in the data, the Fed should maintain interest rates at their current levels.

The recovery in US Treasury yields from recent losses is seen as a potential factor that could provide support to the US Dollar. The 10-year US Treasury bond yield stands at 4.73%, by the press time.

However, the USD continues to benefit from safe-haven flows amid rising geopolitical tensions between Israel and Palestine. Safe-haven currencies, including the US Dollar, tend to attract demand during periods of heightened uncertainty and geopolitical risks.

Market participants will likely watch the US Retail Sales and the Fed Beige Book report will also be eyed on Tuesday.