GBP/USD faces resistance above 1.2200 despite solid UK Retail Sales

In the early Asian session, the GBP/USD pair is feeling pressure while closing a small gap and surpassing the round-level barrier of 1.2200. As demand for US government bonds weakens, the Cable's potential to maintain its recent ascent is hampered by the bullish market sentiment. Given the pressure to sell the British pound, it is highly plausible that the Cable will continue to decrease.

In the interim, following Monday's late sell-off, S&P500 futures have extended their losses, signaling a more risk-averse market mentality. It appears that market participants have reduced their appetite for risk in anticipation of Federal Reserve (Fed) chair Jerome Powell's address. The US Dollar Index (DXY) is likely to remain on edge as Fed Chair Powell's speech will provide clues about the probable monetary policy for the February meeting.

In a few trading sessions, the US Dollar Index saw tremendous volatility as a result of a sharp decline in Manufacturing and Services PMI in the United States economy, as well as a major decrease in pay inflation. However, the Fed's policymakers do not anticipate a significant shift in their forecasts for future interest rates.

Mary Daly, president of the San Francisco Fed Bank, remarked that the December pay statistics only represented one month of information, which cannot be deemed a success. It is too soon to declare victory and cease rate rises. It is reasonable for interest rates to be between 5% and 5.25 percent to combat persistent inflation. Also, according to Raphael Bostic, president of the Atlanta Federal Reserve bank, interest rates will rise between 5% to 5.25 percent, and the central bank will maintain higher rates through CY2023.

According to Reuters, Bank of England (BoE) Chief Economist Huw Pill indicated that supply chain disruptions appear to have decreased over the past few months. He cautioned that imported gas prices have remained significantly higher than in the past, and that the possibility of a second round may persist.

The British pound was unaffected by the release of upbeat Like-for-Like Retail Sales (Dec) figures from the British Retail Consortium (BRC). Annual economic data have increased to 6.5% from 4.1% previously reported.