GBP/USD approaches monthly top above 1.2600 on UK support, softer USD ahead of US PCE Inflation

• GBP/USD grinds higher at three-week top, eyes further gains.
• UK government announced multiple measures to help the most vulnerable households.
• US Dollar Index remains pressured around monthly low amid risk-on mood, downbeat US data.
• Fed’s preferred inflation gauge eyed for further USD weakness.

GBP/USD remains on the way to a monthly high, after rising for three consecutive days to a three-week top, as the UK’s aid package joins broad US dollar weakness. That said, the cable pair grinds higher around 1.2600 by the press time of early Friday morning in Asia.

UK’s Chancellor Rishi Sunak announced multiple measures to tame the cost of living on Thursday. The government’s temporary levy on energy profits and targeted support to the most vulnerable households in the UK are some of the measures that favored the cable bulls the previous day.

It’s worth noting that the recently hawkish BOE and comparatively less appreciation for the Fed’s 50 bps rate-hike plans also underpin the GBP/USD pair’s latest advances.

On the other hand, the US Dollar Index (DXY) reversed Wednesday’s rebound from the monthly low as the US preliminary Q1 2022 Annualized GDP eased below -1.4% prior and -1.3% forecasts to -1.5%. Further, a slump in the US Pending Home Sales for April, to -3.9% versus -2.0% forecast also weighed on the greenback.

Elsewhere, market sentiment remained positive, as traders feel relieved in predicting the Fed’s next move with more accuracy. Also, downbeat US data and an absence of major data played their roles to underpin the GBP/USD upside.

While portraying the mood, Wall Street benchmarks portrayed the second day of gains whereas the US 10-year Treasury yields remained indecisive around 2.75%.

Looking forward, Fedspeak and the geopolitical headlines concerning China and Russia will be crucial for short-term GBP/USD moves. Above all, the US Core Personal Consumption Expenditure (PCE) Price Index for April, expected at 4.9% YoY versus 5.2% prior, will be crucial amid the latest run of softer US data weighing on the greenback.

Read: US Core PCE Preview: Why there is room for a dollar-lifting upside surprise

Technical analysis

Sustained trading beyond the fortnight-old rising support line, near 1.2575, directs GBP/USD buyers towards the monthly high near 1.2640. However, bulls remain unconvinced below a downward sloping trend line from late February, around 1.2740.