GBP/USD whipsaws around 1.2800 as UK inflation favors BoE hawks, focus on Fed Chair Powell

• GBP/USD picks up bids to pare weekly loss, the first in four, after upbeat British inflation data.
• UK CPI reprints 8.7% YoY for May versus 8.4% expected, Core CPI matches 6.8% market forecasts and previous readings.
• Hawkish Fed talks, upbeat US data and sour sentiment put a floor under the US Dollar despite recent inaction.
• Fed Chair Jerome Powell’s bi-annual testimony eyed ahead of Thursday’s BoE announcements.

GBP/USD jumps 60 pips to pierce 1.2800 before retreating to 1.2760 as market players reassess the UK inflation data heading into Wednesday’s London open.

UK Consumer Price Index (CPI) for May rose past 8.4% market expectations to reprint the 8.7% YoY figure. That said, the Core CPI, which excludes volatile food and energy items, matches analysts’ estimations to register a stagnant increase in inflation, with 6.8% YoY numbers.

With the upbeat UK inflation numbers, as well as the previously published strong British jobs report, the Bank of England (BoE) appears all set to announce another increase in its benchmark interest rate on Thursday. Preparations for the same seem to have favored the GBP/USD buyers of late.

However, the US Dollar’s ability to grind higher for the fourth consecutive day, despite recent inaction, challenges the GBP/USD pair buyers even as the UK inflation favors BoE hawks.

That said, the US Dollar Index (DXY) stays defensive around 102.60 while keeping the four-day uptrend without marking keen interest to move toward the north. The US Dollar’s latest strength could be linked to hawkish comments from the Fed policymakers, mainly the nominees, and strong US housing data. Additionally, the geopolitical fears surrounding the US and China weigh on the sentiment and put a floor under the US Dollar’s haven demand.

Against this backdrop, S&P500 Futures pause the week-start retreat from the highest levels in 14 months, mostly inactive near 4,436 by the press time, whereas the US 10-year Treasury bond yields pare Tuesday’s losses around 3.74% at the latest.

Having witnessed the initial market reaction to the UK inflation data, the GBP/USD pair traders should keep their eyes on the risk catalysts while waiting for the bi-annual testimony of Fed Chair Jerome Powell. Above all, Thursday’s BoE Interest Rate Decision will be the key for the Cable pair traders to watch for clear directions.

Technical analysis

The overbought RSI (14) line and the GBP/USD pair’s inability to stay beyond the key resistance line signals the extension of the previous two-day downtrend towards the previous monthly high of around 1.2680. Adding strength to the said key support is the 10-DMA.