GBP/USD dives to 1.2100 neighbourhood on stronger US PCE inflation report

• GBP/USD retreats sharply from a one-month high amid the emergence of some USD buying.
• The upbeat US PCE report might have revived Fed rate hike bets and favours the USD bulls.
• Bears might still wait for a sustained break below the 1.2100 mark before placing fresh bets.

The GBP/USD pair witnessed a dramatic turnaround from the vicinity of mid-1.2200s, or a one-month high touched earlier this Friday. The retracement slide remains uninterrupted through the early North American session and dragged spot prices to a fresh daily low, around the 1.2100 mark in the last hour.

The US dollar stages a solid intraday recovery from its lowest level since July 5 and turns out to be a key factor exerting heavy downward pressure on the GBP/USD pair. A modest recovery in the US Treasury bond yields extends some support to the greenback, which gets an additional lift from stronger US Personal Consumption Expenditures (PCE report).

The US Bureau of Economic Analysis reported that the headline index accelerated to 6.8% YoY in June from 6.3% previous. The Core PCE Price Index - the Fed's preferred gauge of inflation - edged higher to the 4.8% YoY rate as against the 4.7% in May and expected. Further details revealed that Personal Spending and Personal Income rose by 1.1% and 0.6%, respectively.

The upbeat data might have revived speculations for a 50 bps Fed rate hike move at each meeting in the remainder of this year. This, along with a modest pullback in the US equity futures, remains supportive of the intraday USD bounce. That said, it would be prudent to wait for some follow-through selling below the 1.2100 mark before placing bearish bets around the GBP/USD pair.

Technical levels to watch