GBP/USD faces pressure as US CPI looms with 3% inflation target debate

GBP/USD is trading cautiously around 1.2650 as markets await Wednesday's crucial US Consumer Price Index data, which could reshape Federal Reserve policy expectations. Economists forecast November CPI to show 2.7% year-over-year inflation, up from 2.6% in October, while core CPI is expected to remain sticky at 3.3%. The debate over whether the Fed might tolerate inflation closer to 3% rather than the traditional 2% target has intensified, potentially affecting dollar strength. Recent Fed officials' comments suggest growing acceptance of higher inflation levels, which could limit further rate cuts in 2025. For GBP/USD, immediate resistance sits at 1.2700, with support found at 1.2600. A CPI reading above consensus could strengthen the dollar and push the pair toward 1.2550, while a softer print might allow cable to test 1.2750. Traders should monitor both the headline and core figures for directional cues.