Sterling fell on Wednesday, sliding toward 21-day moving average support just below 1.2100 as markets gear up for Thursday's U.S. CPI data nL1N33W0WW, which may set the tone for Fed policy in 2023.

The pound remains soft since hitting its 2023 high at 1.2209 on Jan 9 as traders weigh the lingering UK inflation, recession uncertainties and the potential Fed policy shift this year.

Though markets expect the Fed to finish rate hikes in H1, the question remains what would a pivot entail.

Fed members have signaled a prolonged state of high-for-longer rates, thoughfed funds futures are projecting cuts by year-end 0#FF: while longer-term U.S. Eurodollar futures 0#ED: are pricing a drop in rates from just under 5% in June 2023 to a nadir at 3.14% by December 2025.

While UK SONIA 0#SON3: markets currently indicate slightly higher British rates relative to the U.S. in the belly of the SONIA curve, deep UK recession expectations may prod the BoE to follow the Fed lower nL8N3353H4 by year-end, which should exert downward pressure on GBP/USD.

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