GBP/USD fails to hold above 1.2100, erases gains

• Quiet session on Tuesday ahead of US CPI.
• DXY drops modestly, remains above 106.00.
• GBP/USD flat for the day, holding above the 20-day SMA.

The GBP/USD is hovering slightly below 1.2100, in a quiet session. The pair peaked at 1.2130 and then pulled back to 1.2077. The US dollar is mixed as market participants await the July print of the US CPI.

Quiet session, inflation data on the radar

Stocks in Wall Street are falling on Tuesday, with the Dow Jones down by 0.09% and the Nasdaq by 1.44%. Treasuries are modestly lower. The US 10-year yield rose to 2.81% and then retreated to 2.78%, and the 30-year peaked at 3.03% and is back below 3.0%.

In the currency market pairs move sideways, in small ranges. The US Dollar Index is falling by 0.19%; it remains above 106.00.

On Wednesday, the July US CPI index will be released. Market consensus is for a decline from 9.1% to 8.7% in the annual rate. An upside surprise could trigger a rally of the US dollar considering it would favor expectations about an aggressive Federal Reserve, particularly following the upbeat July employment report.

In the UK, attention remains on the Tory race to succeed Boris Johnson. The favorite is Liz Truss. She said she does not want to give handouts to families and prefers to prioritize tax cuts. The rise in energy bills continues to pressure the government.

Regarding the Bank of England, the deputy governor, Dave Ramsden said they would probably have to hike interest rates again to help curb inflation. The question is how much it will raise it: 25 or 50 basis points.

From a technical perspective, GBP/USD failed to hold above 1.2100, showing a lack of strength. A break above 1.2130 should point to more gains, targeting 1.2180. The bias for the next hours appears titled to downside while under 1.2110. The critical support may be seen at 1.2065.

Technical levels