GBP/USD grinds below 1.2625 hurdle ahead of UK data dump, FOMC

• GBP/USD seesaws around the highest levels in over a month amid cautious markets ahead of UK GDP, Fed.
• Market’s reassessment of BoE vs. Fed divergence also prods Cable buyers on the key data.
• Pound Sterling can remain firmer unless UK’s economic fears, hawkish surprise from Fed rattle market.

GBP/USD aptly portrays the Fed day anxiety as it makes rounds to 1.2610 during early Wednesday. In doing so, the Cable pair fades upside momentum as the traders recheck the hawkish signals flashes via the US inflation and the UK employment data the previous day.

On Tuesday, UK Claimant Count Change for May slumps to -13.6K versus -9.6K expected and 46.7K prior whereas the ILO Unemployment Rate for three months to April 3.8% compared to 3.9% previous readings and 4.0% market forecasts.

Following the data, Bank of England (BoE) policymaker Catherine Mann said on Tuesday, “Wage increases of 4.0% would be a challenge to returning CPI to 2.0%.” BoE’s Mann also added that the drop in inflation expectations was important for her to switch my vote to 25 bp rate hike from 50 bps. On the other hand, BoE Monetary Policy Committee (MPC) appointee Megan Greene stated that important not to allow inflation expectations to become de-anchored, which in turn suggested tighter monetary policy and higher rates ahead.

More importantly, the US Dollar Index (DXY) slumped the most in a week, to the lowest levels since May 22, after the US inflation data fuelled speculations of the US central bank’s halt to the rate hike trajectory present in the last 10 monetary policy meetings.

That said, the US Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should have weighed on the US Dollar.

It should be noted that the dicey market conditions, as portrayed by the inactive S&P500 Futures and sluggish yields also prod the GBP/USD traders ahead of a slew of the UK data and the Fed announcements.

Looking forward, a likely improvement in the monthly UK Gross Domestic Product (GDP) for April may allow the Pound Sterling buyers to keep the reins unless the Fed offers a hawkish surprise.

Technical analysis

The overbought RSI conditions and an ascending resistance line from June 01, around 1.2615 by the press time, quickly followed by the previous monthly high of near 1.2625, prod the GBP/USD bulls. Also restricting the Cable pair’s upside is the Doji candlestick on the four-hour play marked at the multi-day high, suggesting a pullback in prices.

Also read: GBP/USD Price Analysis: Cable bulls stall near 1.2600, pullback hinges on UK GDP, Fed