May 22

GBP/USD jumps to 1.2750 after UK CPI data

GBP/USD has broken out of its range play to challenge 1.2750 after the top-tier UK inflation data. The UK annual CPI rose 2.3% in April, above the market expectations of a 2.1% growth, pushing back against bets of a BoE June rate cut and lifting the Pound Sterling. 

Technical Overview

GBP/USD trades within the upper half of the ascending regression channel coming from late April and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 70, suggesting that the pair could have a hard time gathering further bullish momentum before making a technical correction.

On the upside, 1.2760 (Fibonacci 78.6% retracement of the latest downtrend, upper limit of the ascending channel) aligns as key resistance before 1.2800 (psychological level, static level). Supports are located at 1.2700 (psychological level, static level), 1.2660 (Fibonacci 61.8% retracement of the latest downtrend, mid-point of the ascending channel) and 1.2600 (static level).


Fundamental Overview

GBP/USD holds steady slightly above 1.2700 early Tuesday after closing the first day of the week virtually unchanged. The technical outlook shows that the bullish bias stays intact but the pair's action could remain subdued ahead of key inflation data from the UK on Wednesday.

The lack of high-impact macroeconomic data releases allowed financial markets to remain quiet on Monday. Comments from Fedral Reserve (Fed) officials helped the US Dollar find a foothold following the decline seen in the previous week and made it difficult for GBP/USD to stretch higher.

Later in the day, Bank of England (BoE) Governor Andrew Bailey will speak on the key role that central bank reserves play in delivering the core mandates at an event organized by the London School of Economics and Political Science. 

During the American trading hours, Fed Governor Christopher Waller, NY Fed President John Williams and Boston Fed President Susan Collins and Cleveland Fed President Loretta Mester are scheduled to deliver speeches. Fed officials have been acknowledging the progress seen in inflation in April, while taking on a cautious tone with regards to policy easing. Hence, the impact of Fed commentary on the USD's valuation until Thursday's PMI data could remain short-lived.

On Wednesday, the UK's Office for National Statistics (ONS) will publish Consumer Price Index (CPI) data for April. Investors expect the annual CPI inflation to decline to 2.1% from 3.2% in March. A reading below the market expectation could revive expectations for a BoE rate cut in June and weigh on Pound Sterling.