- GBP/USD gained strong positive traction following the release of hotter-than-expected UK CPI.
- A subdued USD demand remained supportive of the intraday move up beyond the 1.4100 mark.
- Investors now seemed reluctant to place aggressive bets ahead of the key FOMC policy decision.
The GBP/USD pair maintained its bid tone through the mid-European session and was last seen hovering near the top end of its daily trading range, comfortably above the 1.4100 mark.
Following a brief consolidation through the early part of the trading action on Wednesday, the pair caught some fresh bids following the release of hotter-than-expected UK inflation figures. In fact, the headline UK CPI jumped above the Bank of England’s target for the first time in almost two years and rose 2.1% in May. This marked a sharp acceleration from April’s 1.5% and also surpassed consensus estimates pointing to a reading of 1.8%.
This, along with a subdued US dollar demand, allowed the GBP/USD pair to build on the overnight bounce from the 1.4035-30 region, or one-month lows. The momentum pushed the pair beyond the 1.4100 mark, though a combination of factors held bulls from placing aggressive bets. Investors remain concerned about the EU-UK stand-off on the Northern Ireland protocol and the UK government’s decision to delay the final stage of easing lockdown measures.
Apart from this, nervousness ahead of the highly-anticipated FOMC policy decision acted as a headwind for the GBP/USD pair. Investors might have already started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. Expectations for a less dovish Fed helped put a tentative floor under the greenback and kept a lid on any further gains for the major, at least for the time being.
This makes it prudent to wait for some strong follow-through buying before confirming that the recent pullback from the vicinity of mid-1.4200s, or the highest level since April 2018 has run its course. That said, any subsequent positive move is more likely to confront a stiff resistance and remains capped just ahead of the 1.4200 mark, warranting some caution before positioning for any further appreciating move.
Technical levels to watch