The GBP/USD pair experienced a brief surge towards the 1.2470 level during the early European session but retraced back towards the lower end of its daily trading range. Currently hovering around the 1.2420 mark, the pair appears susceptible to extending its recent downward correction witnessed over the past fortnight.
Following the release of stronger-than-anticipated UK inflation data, the British Pound (GBP) initially received a minor boost. However, this upward move quickly lost steam. The Office for National Statistics reported that the headline UK CPI climbed 8.7% year-on-year in April, surpassing consensus estimates of 8.2%.
Nevertheless, this figure represents a notable slowdown from the 10.1% YoY rate recorded in March, reaffirming expectations of reduced rate hikes by the Bank of England (BoE) in the upcoming months to curb inflation.
Combined with the prevailing bullish sentiment surrounding the US Dollar (USD), this factor restricts the upside potential for the GBP/USD pair.
Meanwhile, the USD Index (DXY), which gauges the performance of the Greenback against a basket of currencies, remains strong, reaching a two-month high on Tuesday. The ongoing speculation of additional rate hikes by the Federal Reserve (Fed), fueled by hawkish comments from various Fed officials, supports the USD.
This expectation indicates that the US central bank will maintain higher interest rates for a longer period. Furthermore, concerns about the global economy’s deceleration and US debt ceiling issues contribute to the USD’s safe-haven status, benefiting the currency further.
Consequently, some selling pressure is observed in the GBP/USD pair. However, the downside is currently cushioned as market participants await the release of the FOMC minutes.
Investors are eagerly seeking fresh clues regarding the Fed’s future rate hike trajectory, as this will significantly influence short-term USD price movements and provide a new directional impetus for the GBP/USD pair.
Nevertheless, the aforementioned fundamental factors predominantly favor bearish traders, suggesting that the path of least resistance for spot prices leans towards the downside.
Furthermore, from a technical standpoint, the recent breach of the 50-day Simple Moving Average (SMA) supports the potential for an extension of the retracement from the one-year high reached earlier this month.
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