• GBP/USD falls 0.20% post-UK inflation report, trading near the 200-day MA at 1.2565.
• Fed officials highlight easing inflation, advocate for flexible policy guidance, impacting market dynamics.
• UK inflation data and BoE Governor's comments reflect cautious optimism amidst economic recovery signs.

The Pound Sterling drops during the North American session by 0.20% following a positive UK inflation report that showed prices are slowing down. At the time of writing, the GBP/USD trades at 1.2565 and tests the important 200-day moving average (DMA) after hitting a high of 1.2611.

GBP/USD tests key 200-DMA support level sponsored by investors trimming odds for Fed rate cuts

The US economic docket featured Federal Reserve speeches by the Chicago Fed President Austan Goolsbee and Governor Christopher Waller. Goolsbee said that inflation is coming down and added that current policy is restrictive. He said that rate cuts should be tied to confidence that inflation is on the Fed’s path.

Lately, Fed Governor Waller noted that one lesson learned from 2020 is that forward guidance should be more flexible. He added that forward guidance perhaps should also signal the possible path of the policy rate.

Besides that, GBP/USD takes cues from the fall in US Treasury bond yields after skyrocketing more than 12 basis points a day ago, dropping six basis points and standing at 4.26%.

In the European session, the UK’s inflation was lower than expected, standing at 4% YoY, unchanged from December but below estimates of 4.2%. Underlying inflation came at 5.1% YoY, unchanged but below estimates of 5.2%.

Recently, the Bank of England (BoE) Governor Andrew Bailey said the latest inflation report does not change their view from February’s monetary policy decision, adding they need to see more evidence that prices are coming down. Bailey added that there were signs the UK economy is picking up, despite Thursday’s data showing it was in recession in the second half of last year