GBP/USD retreats to 1.2000 post-UK CPI, downside seems cushioned amid softer USD

• GBP/USD continued with its struggle to make it through the 1.2040-1.2045 resistance zone.
• Stronger UK consumer inflation figures failed to impress the GBP bulls or provide any impetus.
• The prevalent USD selling bias acted as a tailwind for the major and helped limit the downside.

The GBP/USD pair edged higher for the fourth successive day on Wednesday and inched back closer to a two-week high touched the previous day. The uptick, however, lacked bullish conviction and once again failed near the 1.2040-1.2045 region. Spot prices quickly retreated a few pips following the release of the UK consumer inflation figures and now seem to have stabilized around the 1.2000 psychological mark.

The UK Office for National Statistics (ONS) reported that the headline UK CPI accelerated to the 9.4% YoY rate in June, surpassing estimates pointing to a rise to 9.3% from the 9.1% in the previous month. The monthly figures showed that the UK CPI rose 0.8% in June as against 0.7% anticipated and the 0.7% previous. Excluding volatile food and energy items, the core inflation gauge, however, eased to 5.8% YoY in June from the 5.9% booked in May. This, in turn, was seen as a key factor that acted as a headwind for the British pound and attracted some intraday selling around the GBP/USD pair.

On the other hand, the US dollar languished near its lowest level since July 6 amid diminishing odds for a more aggressive rate hike by the Federal Reserve later this month. In fact, several FOMC members signalled last week that they will likely stick to a 75 bps rate increase at the upcoming policy meeting on July 26-27. Apart from this, a generally positive tone around the equity markets continued undermining the safe-haven greenback and offered some support to the GBP/USD pair. This makes it prudent to wait for some follow-through selling before positioning for any meaningful slide.

Market participants now look forward to the release of the US Existing Home Sales data, due later during the early North American session. In the meantime, expectations that the recent surge in US inflation to a four-decade high would force the Fed to deliver a larger rate hike later this year should hold back the USD bears from placing aggressive bets. The speculations were reinforced by elevated US Treasury bond yields. This, in turn, should cap gains for the GBP/USD pair.

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