GBP/USD consolidates but prospects of bullish extension loom

• GBP/USD bulls stay the course and eye a higher high for Wednesday. 
• US Retail Sales are the next major news on the calendar. 

GBP/USD rallied early on Tuesday after data showed British wages rose faster than expected in the last three months of 2022. The data raised the prospects of a more hawkish Bank of England as the inflation battle consumes sentiment in markets. In that regard, the US Consumer Price Index was the next key event for the pair with the data underpinning the outlook for further rate hikes from the Federal Reserve. 

At the time of writing, GBP/USD is trading near 1.2170 and between the day's range of 1.2116 and 1.2269, a high reached as investors read that there are signs that price and wage rises are becoming entrenched, something that would typically boost the pound.

''Pay growth over recent months has still been strong enough, in our view, to justify another 25bp hike by the Bank of England at its March meeting, though of course, we’ll have had another labour market report by then (and two CPI prints,'' analysts at Nomura explained. Meanwhile, a Reuters poll of analysts that the Bank of England will hike by another 25 basis points on March 23, taking the main rate to 4.25%, and then pause.

As for the New York session, US inflation data hit the screens and caused two-way price action with the US dollar whipsawed around the numbers as investors tried to digest and draw conclusions from a mixed report.  the data ultimately will help the Federal Reserve to decide on its interest rate plans for the coming months, and subsequently would be expected to drive markets globally for the coming days. 

The annual inflation rate in the US, as measured by the Consumer Price Index,  slowed only slightly to 6.4% in January from 6.5% in December, less than market forecasts of 6.2%, suggesting that getting inflation under control will take more time than expected. As a consequence, the US Dollar index traded in a volatile fashion around 103.00 but was posied higher due to the hotter-than-expected data that was regarded to be dashing hopes that the Federal Reserve will soon end its tightening campaign.

For Wednesday's key data in the US, analysts look for a strong rebound in retail sales following December's sharp contraction, with a surge in auto sales playing a significant role after consecutive declines in Nov-Dec. ''Importantly, control group sales likely also jumped owing to a strong showing in online spending. We also look for sales in bars/restaurants to have advanced (firmly) for the first time in three months.''

GBP/USD technical analysis

The price has picked up two days of longs in the market and tomorrow could be pulling in additional bullish bets as the bulls hunt down the 1.22 area. This could be offering the bears an opportunity on Wednesday: