GBP/USD retreats to 1.3200 area after UK inflation report

• GBP/USD lost its traction after renewing 2020 high at 1.3268.
• Annual core CPI in the UK rose to 1.8% in July.
• US Dollar Index stays flat near 92.30 ahead of FOMC Minutes.

The GBP/USD pair gained more than 100 pips on Tuesday and extended its rally to a fresh 2020 high at 1.3268 during the European trading hours on Wednesday. However, the pair lost its traction in the last hours and retreated to 1.3200 area, where it was down 0.25% on a daily basis.

UK CPI report weighs on GBP

Earlier in the day, the data published by the UK’s Office for National Statistics (ONS) showed that the core Consumer Price Index (CPI) in the UK jumped to 1.8% on a yearly basis in July. This reading followed June’s print of 1.4% and came in higher than the market expectation of 1.3%. Further details of the publication revealed that the Retail Price Index rose from 1.1% to 1.6% annually.

The initial reaction to this data caused the GBP to start losing strength against its peers. The Bank of England (BoE) could opt out to stay on hold with respect to further policy easing amid the sharp increase witnessed in the CPI.

Meanwhile, investors will be keeping a close eye on headlines coming out of this week’s new round of Brexit talks.

On the other hand, the US Dollar Index stays relatively quiet near 92.30 following Tuesday’s sharp drop and allows the GBP’s performance to continue to drive GBP/USD’s movements. There won’t be any significant macroeconomic data releases featured in the US economic docket. Later in the day, the FOMC will publish the July Meeting Minutes. 

Technical levels to watch for