GBP/USD tests region around 1.2600 as US CPI softens

• GBP/USD has recaptured the crucial resistance of 1.2600 as US inflation has decelerated.
• Soft US inflation landing has joined easing Employment conditions, and weak economic activities, which will support neutral policy by Fed.
• The Pound Sterling witnessed stellar buying interest after the release of the upbeat UK Employment data.

The GBP/USD pair has reclaimed the round-level resistance of 1.2600 in the early New York session. The Cable has attracted significant bets as the United States Consumer Price Index (CPI) for May has softened as expected by the market participants.

Monthly headline US inflation has reported a slight pace of 0.1% vs. the estimates of 0.2% and the former pace of 0.4%. Also, annualized headline CPI has softened to 4.0% while the street was anticipating a decline to 4.1% from the former release of 4.9%. The impact of lower gasoline prices is clearly visible in the headline inflation.

Meanwhile, monthly core CPI that excludes the impact of oil and food prices has remained steady at 0.4% as expected. Annualized core CPI has decelerated to 5.3% as expected by the street.

Soft US inflation landing has joined easing labor market conditions, and weak economic activities, which are going to provide luxury to Federal Reserve (Fed) chair Jerome Powell for keeping policy unchanged. Investors should note that the Fed has already hiked interest rates to 5.00-5.25% after a 10 consecutive rate-hiking spell.

S&P500 has added significant gains in its opening session as investors’ sentiment for a neutral interest rate policy stance by the Fed has improved. The US Dollar Index (DXY) has shown a mild recovery after dropping to near 103.10. A volatile action from the USD Index cannot be ruled out as investors will start preparing for the Fed’s interest rate decision. Contrary to the USD Index’s action, the 10-year US Treasury Yields have rebounded to near 3.77%.

On the Pound Sterling front, investors will keep an eye on the speech from Bank of England (BoE) Governor Andrew Bailey. In the European session, the Pound Sterling witnessed stellar buying interest after the release of the upbeat United Kingdom Employment data. The Unemployment rate slipped again to 3.8% while Claimant Count Change remained lower than estimated.