The GBP/USD pair bounced back in the early European session, climbing to the mid-1.2400s after hitting a weekly high. The British Pound strengthened following the release of stronger UK consumer inflation figures, with the headline UK CPI easing less than expected in March, to a YoY rate of 10.1% from 10.4% in the previous month.
The Core CPI, which excludes volatile food and energy items, held steady at 6.2% YoY, exceeding expectations of a slide to 6.0%.
The stubbornly high inflation, coupled with stronger UK wage growth data from Tuesday, should keep the pressure on the Bank of England (BoE) to raise interest rates further.
The markets now expect a 25-bps rate hike in May, with over a 90% chance, benefitting the Sterling Pound. However, the emergence of USD buying is capping the upside for the GBP/USD pair.
The US central bank’s hawkish stance, as seen in several Federal Reserve (Fed) policymakers’ recent statements, supports prospects for further tightening and allows the US Treasury bond yields to touch a fresh multi-week high, reviving the USD demand.
Furthermore, the generally weaker tone around equity markets is also contributing to capping the upside for the GBP/USD pair.
Investors will focus on the release of the Fed’s Beige Book later during the US session, along with the US bond yields and broader risk sentiment, to gauge the state of the US economy and influence the USD. Despite the mixed fundamental backdrop, traders are cautious before placing aggressive directional bets on the GBP/USD pair.
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