• GBP/USD has recaptured the psychological resistance of 1.2000 amid a positive market mood.
• Lower earnings and higher inflation rates may create more hitches for the households in the UK.
• Declining inflation expectations in the US may hurt DXY further.

The GBP/USD pair has rebounded firmly after picking bids below 1.2000 in the early Tokyo session. The cable has remained in the grip of bulls amid a risk-on market impulse, which has improved the favorability of the risk-perceived assets.

The pound bulls have remained upbeat on Tuesday despite the release of the subdued UK employment data. The Unemployment Rate remained flat at 3.8%. However, the Claimant Count Change tumbled to 20K from the prior release of -34.7k.

The catalyst that is haunting the market participants is the downbeat Average Hourly Earnings, which plunged to 6.2% from the expectations of 6.9% and the prior release of 6.8%. The investing community is aware of the fact that the UK economy is facing the headwinds of higher price pressures led by higher energy bills and food prices. Lower earnings along with price pressures are going to hurt the sentiment of the market participants dramatically.

Meanwhile, the US dollar index (DXY) is likely to see more downside as inflation expectations to trim further amid vulnerable oil prices in July. This has trimmed expectations for a 1% rate hike by the Federal Reserve (Fed) in its July monetary policy meeting.

In today’s session, the release of the UK Consumer Price Index (CPI) will be of utmost importance. The economic data is seen at 9.3%, higher than the prior release of 9.1%. However, the core CPI that excludes oil and food may trim to 5.8% by 10 bps from its prior release.