GBP/USD climbs toward 1.2450 on hot UK CPI

GBP/USD has gathered bullish momentum and advanced toward 1.2450 area early Wednesday. The data from the UK revealed that the annual core CPI stayed unchanged at 6.2% in March, compared to the market expectation of 6%, and provided a boost to Pound Sterling.

GBP/USD was last seen trading in the 1.2440/50 area, where the 50 and the 20-period Simple Moving Averages (SMA) on the four-hour chart are located. Once the pair start using that area as support, it could face strong resistance at 1.2500 (lower limit of the broken ascending regression channel). With a four-hour close above this level, it could target 1.2550 (static level) next.

On the downside, 1.2400 (100-period SMA) forms first support before 1.2370 (Fibonacci 23.6% retracement of the latest uptrend) and 1.2300 (psychological level).

Following Monday’s extended downward correction, GBP/USD has gathered recovery momentum and advanced beyond 1.2400 early Tuesday. The pair’s technical outlook is yet to show a convincing bullish shift in the short term.

The data published by the UK’s Office for National Statistics revealed on Tuesday that the ILO Unemployment Rate ticked up to 3.8% in February (3 months/YoY) from 3.7%. More importantly, wage inflation, as measure by the Average Earnings Excluding Bonus, stayed unchanged at 6.6% in the same period, surpassing the market expectation of 6.2%.

On the back of strong wage inflation print, markets are pricing in 82.5% probability of one more 25 basis points (bps) Bank of England (BoE) rate increase in May, per Reuters.

On the other hand, the US Dollar has lost its strength with the US Treasury bond yields struggling to build on Monday’s gains. Moreover, the positive shift witnessed in risk mood is putting additional weight on the currency’s shoulders.

Later in the day, Building Permits and Housing Starts data for March from the US will be looked upon for fresh impetus. In case these figures fall significantly short of analysts’ estimates, the USD could continue to weaken against its rivals and vice versa. Investors, however, are unlikely to change their opinion regarding one more Federal Reserve (Fed) rate increase at the upcoming meeting based on these data.

It’s also worth noting that US stock index futures are up between 0.2% and 0.4% in the European session on the back of upbeat growth and retail sales figures from China. In case risk flows continue to drive the market action in the second half of the day, GBP/USD should be able to continue to stretch higher.

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