GBP/USD surges through 1.2600 handle, back closer to overnight swing high

   “¢   Prospects of May winning the confidence vote prompts aggressive short-covering move.
   “¢   The USD bulls seemed unimpressed by CPI print and further fueled the intraday upsurge.

The GBP/USD pair built on its strong intraday recovery from yearly lows and climbed further beyond the 1.2600 handle during the early North-American session.

The pair witnessed a sudden intraday turnaround and staged a solid recovery from a fresh 20-month low level of 1.2477, touched in reaction to the news that leadership contest against the UK PM Theresa May has been triggered.

However, growing confidence that the UK PM Theresa May will be able to win the confidence vote prompted some aggressive short-covering around the British Pound and was seen as one of the key factors behind the pair’s strong intraday rebound.

Meanwhile, the US Dollar bulls seemed rather unimpressed by today’s mostly in line US consumer inflation figures, reflecting easing inflationary pressure. The disappointment was evident from a modest retracement in the US Treasury bond yields, which undermined the USD demand and further collaborated to the pair’s upsurge of over 150-pips.

“The Fed can remove inflation from its list of current worries. Core CPI is 2.2%, PCE lower, the economy at 3% and improving wages. Chairman Powell’s note that “The economy is strong, unemployment is near 50-year lows, and inflation is roughly at our 2 percent objective,” is true,” Joseph Trevisani, a senior analyst at FXStreet commented on today’s US inflation report.

It, however, remains to be seen if the up-move is backed by any genuine buying or is solely led by short-covering from near-term oversold conditions, which runs the risk of being sold into amid persistent uncertainty over the UK’s exit from the European Union.

Technical levels to watch