GBP/USD stays firm at around 1.2160s post US CPI

• The GBP/USD holds to its early gains in a volatile trading session.
• US inflation rose above estimates but cooled compared to December’s data.
• GBP/USD Price Analysis: It could resume its uptrend if it conquers 1.2200.

The GBP/USD dropped sharply in the North American session following the release of inflation data in the United States, which, although increased, initially sent the GBP/USD spiking towards its daily high at 1.2269 before reversing its course to the 1.2130 area. However, a late bounce sparked a recovery in the GBP/USD, trading at 1.2166, above its opening price.

US CPI cooled on an annual basis but was higher than forecasts

US inflation reported by the Department of Labor (DoL) showed that the Consumer Price Index (CPI) for January rose by 6.4% YoY, above estimates of 6.2%, while core CPI jumped to 5.6% YoY, against data estimated at 5.5%. Monthly basis readings were in line with estimates.

After the data release, US Treasury bond yields advanced, with the US 2-year Treasury bond yield edging towards 4.622%, as an initial reaction to the data, which warrants further tightening by the US Federal Reserve (Fed). Consequently, the greenback advanced, with the US Dollar Index (DXY) peaking at around 103.83 before reversing its course, toward the 103.09 area.

In the meantime, the swaps markets estimate the Fed would hike rates until the 5%-5.25% range, and then some cuts are expected by the end of the year.

Across the pond, data from the United Kingdom (UK), capped the Pound Sterling (GBP) fall vs. the US Dollar (USD). According to Reuters, wages in Britain grew quickly in the last quarter of 2022, keeping the Bank of England (BoE), pressured. Investors increased “slightly” their bets that the BoE would raise rates by 25 bps at their March meeting.

Elsewhere, Fed officials led by Thomas Barkin from the Richmond Fed are crossing the wires. Commented that the inflation report was “about as expected,” adding that inflation, although normalizing, it’s doing it slowly. Therefore, Barkin said there’s a good cause for leaving rates higher for a longer period.

GBP/USD Technical analysis

From a technical perspective, the GBP/USD daily chart suggests the pair is neutral to upward biased. Upward continuation will resume if the GBP/USD clears the 1.2200 figure, which could lift the major towards the February high of 1.2401. Firstly, it needs to hurdle the psychological 1.2300 barrier. On the flip side, a GBP/USD fall underneath the 20-day EMA at 1.2179 would expose the confluence of the 200/50-day EMA at 1.2136/1.2128, respectively, ahead of falling to 1.21000.