GBP/USD traded either side of flat Tuesday after considerable post-CPI yaw, with the upside surprise in annual figures ultimately pulling cable back from bulls' overnight sprint to highs by 1.2172, setting up for potential volatility after Wednesday's UK price data.

The U.S. CPI rise was not a total surprise after other countries including Australia seeing a pickup in inflation recently, which boosted AUD/USD amid higher RBA rate expectations.

U.S.
rates are now pricing a slightly elevated Fed terminal rate at 5.22% in August 2023.

Wednesday's UK price data will be parsed for hints of near-term BoE policy shifts, higher or lower.

Should UK data indicate falling inflation, dovish BoE members may hold sway, increasing the likelihood that policymakers signal a willingness to accommodate growth as the UK sits on the threshold of what is expected to be a long, and possibly deep recession, which should reverse recent GBP/USD gains.

Should UK inflation follow recent global inflation trends higher, the BoE is likely to continue on a similar tack as the Fed, which should keep GBP/USD anchored near current levels.

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