GBP/USD rallied to a new six-month high at around 1.2440s after a soft US CPI report

• US Core Consumer Price Index hits the 6% threshold, weakening the US Dollar.
• The Pound Sterling hit a fresh six-month high at around 1.2442 following the release of US inflation.
• GBP/USD: Break above 1.2450 could pave the way to 1.2500; otherwise, it could fall to 1.2350.

The GBP/USD soared sharply following the release of a softer-than-expected inflation report in the United States (US) reported by the Bureau of Labor Statistics (BLS) on Tuesday. On the release, the US Dollar (USD) continues to weaken as traders speculate that the Federal Reserve (Fed) might turn less “hawkish” than expected on Wednesday’s FOMC meeting. At the time of writing, the GBP/USD is trading at 1.2420.

In the release, the GBP/USD broke to levels last seen in June 2022, hitting a fresh six-month high at around 1.2442, though it remains volatile in the aftermath of the release of the Consumer Price Index (CPI).

The BLS revealed that the headline CPI increased 0.1% MoM from the previous month and, on an annual based, ticked lower to 7.1% vs. estimates of 7.3%. Although general inflation continued its downtrend since peaking In June at 9.1%, the so-called core CPI it’s the spotlight, as it suddenly turned north in September. However, November’s data showed inflation is easing, with core CPI at 6%, below the 6.3% consensus.

That said, money market futures have priced in that the Federal Funds rate (FFR) would likely peak at around 5%, with traders expecting the first rate cut of 20 bps at around September 2023, as shown by Eurodollar futures. In the meantime, the US Dollar Index tumbled sharply to six-month lows around 103.586 before trimming some of its losses, closing into the 103.900 mark.

GBP/USD Reaction to US CPI report

The GBO/USD one-hour chart suggests the pair is still upward biased, as shown by the Relative Strength Index (RSI) aiming higher, while the Rate of Change (RoC) so far failed to follow the lead of the former. Since then, the GBP/USD has hit the R4 daily pivot and is hoovering around the R3 daily pivot point at 1.2400 and the R4 pivot level. Therefore, the breach of the R4 pivot level could pave the way toward 1.2500. Otherwise, a fall below 1.2400 could open the door towards the R2 pivot at 1.2350, followed by 1.2310.