GBP/USD rebounds back to 1.2000 as dollar’s strength fades

• US stocks turn positive after opening bell, dollar weakens.
• A quiet session so far across financial markets.
• GBP/USD fails to break 1.2030/40 and retreats to 1.1955.

The GBP/USD pair is hovering around 1.2000, around the same level it closed on Tuesday. Cable bottomed on European hours at 1.1954 and then rebounded to the 1.2000 area.

For the third consecutive day, GBP/USD failed to break the 1.2030/40 area and weakened. The current tone favors a correction that could face support at 1.1950 and 1.1920.

In the short-term, if cable rises above 1.2010 it would gain support. While under 1.2040, gains seem limited. A consolidation above should clear the way to 1.2100.

Inflation in UK and US home prices keep rising

Earlier on Wednesday, inflation data in the UK showed the annual CPI rate rose to 9.4%, above the 9.3% of market consensus, hitting the highest level in 40 years. The numbers did not trigger a reaction in the pound. A 50 basis point from the Bank of England at the August meeting is fully priced in. “Looking ahead, the swaps market is pricing in 175 bp of tightening over the next six months that would see the policy rate peak near 3.0%, followed by a steady rate in the subsequent 6 months and then the start of an easing cycle over the following 12 months”, explained analysts at BBH.

Regarding the Tory rate, Penny Mordaunt has been knocked out of the Conservative leadership contest in the final round, leaving Rishi Sunak and Liz Truss in the run-off. PM Boris Johnson faced his final PMQ at the Parliament that goes on summer recess. The next prime minister will be announced early in September.

In the US, Existing Home Sales dropped in June to 5.12M (market consensus: 5.38M), the fifth decline in a row amid higher interest rates. The report showed the median existing-home price reached a new record in June, at $416K.

The US dollar is posting mixed results. The DXY is up 0.15%, amid higher US yields. Still, the greenback holds onto recent losses. Market participants await next week’s FOMC meeting.

Technical levels