GBP/USD remains well bid above mid-1.2300s, over one-month high ahead of US data

• GBP/USD climbs to over a one-month high and draws support from a combination of factors.
• Elevated UK CPI might force the BoE to continue raising rates and boost the British Pound.
• Bets for smaller Fed rate hikes, sliding US bond yields weigh on the USD and extend support.
• Traders now look forward to important US economic data for some short-term opportunities.

The GBP/USD pair gains positive traction for the second successive day on Wednesday and scales higher through the mid-European session. Spot prices climb to the highest level since mid-December, around the 1.2360-1.2365 region in the last hour and seem poised to prolong the ascending trend witnessed over the past two weeks or so.

The British Pound strengths following the release of the UK consumer inflation figures, which remain elevated and could maintain pressure on the Bank of England (BoE) to continue raising interest rates. The UK Office for National Statistics reported that the annual CPI fell to a three-month low level of 10.5% in December, though the core reading stayed at 6.3% or more than three times the BoE's 2% target. Apart from this, the emergence of heavy selling around the US Dollar provides an additional boost to the GBP/USD pair.

Firming expectations for a less aggressive policy tightening by the Fed triggers a fresh leg down in the US Treasury bond yields. In fact, the markets now seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressures and have been pricing in a 25 bps rate hike in February. This, along with a generally positive risk tone - amid hopes for a strong economic recovery in China - further dents the Greenback's relative safe-haven status against its British counterpart.

Moreover, technical buying on a sustained strength above the 1.2300 mark further contributes to the GBP/USD pair's positive move on Wednesday. The fundamental backdrop as well as the technical setup favours bullish traders and supports prospects for a further near-term appreciating move. Investors now look to the US economic docket, highlighting the release of the Producer Price Index and Retail Sales data. Apart from this, speeches by influential FOMC members and the USD bond yields could provide a fresh impetus.

Technical levels to watch