GBP/USD rises 25+ pips as bulls approach 1.2450 on strong UK inflation

• GBP/USD takes the bids to refresh intraday high as UK inflation rises in March.
• UK CPI came in 10.1% YoY in March versus 9.8% expected and 10.4% prior.
• EU’s Brexit incentive, hawkish Fed/BoE rhetoric join geopolitical fears to prod CAble bears.
• US PMI, UK Retail Sales and Fed Beige Book are the key catalysts to watch for clear directions.

GBP/USD prints a 27 pip worth of jump as the UK’s headlines inflation data offered a positive surprise in March. That said, the Cable pair renews its intraday high near 1.2440 during early Wednesday morning in London.

UK inflation as per the Consumer Price Index (CPI) rise to 10.1% YoY in March versus 9.8% expected and 10.4% prior while the Core CPI reprints 6.2% YoY figure compared to 6.0% market forecasts.

Also read: Breaking: UK annualized CPI inflation softens to 10.1% in March vs. 9.8% expected

With the upbeat UK inflation data, optimism surrounding the Bank of England’s (BoE) rate hike accelerates, previously fuelled by the previous day’s British employment figures. On the same line could be the talks that the European Union (EU) braces for fewer border checks and allow Brexit incentives to the GBP/USD pair.

However, chatters surrounding UK PM Rishi Sunak’s political struggle and plummeting housing prices in London lure the Cable pair sellers.

Furthermore, the UK’s warning that Russian hackers targeting Western critical infrastructure and the fears surrounding the US-China tension about Taiwan, due to the US House China Committee’s discussion about the Taiwan invasion scenario, weigh on the risk profile.

Additionally, the likely drag on the US debt ceiling decision due to US President Joe Biden’s hesitance in lifting limits. Additionally, Bloomberg released news suggesting China’s role in the Russia-Ukraine war, which in turn adds strength to the risk-off mood and challenges the GBP/USD price.

It should be noted that the markets are almost certain of 0.25% Fed rate hike in May and the same joins the recently easing odds favoring the rate cut in 2023 to portray the hawkish bias about the US central bank. Behind the moves are Friday’s US Consumer-centric figures and Monday’s US activity data, as well as the latest upbeat comments from St. Louis Federal Reserve President James Bullard, Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael W. Bostic. However, recently downbeat US housing data prod the Fed hawks and put a floor under the GBP/USD price.

Against this backdrop, US stock futures are mildly offered and the equities in the Asia-Pacific region also grind lower. Further, US Treasury bond yields pause the previous day’s downbeat performance and allow the US Dollar bears to take a breather.

Having witnessed the initial market reaction to the key UK data, GBP/USD traders should rely on the interest rate futures suggesting the moves of the Bank of England (BoE) and the Federal Reserve (Fed). In that case, the Fed’s Beige Book and Friday’s UK Retail Sales, as well as the US S&P Global PMIs, will also be important to watch for clear directions.

Technical analysis

The GBP/USD pair fades bounce off the bottom line of the two-week-old rising wedge bearish chart formation, around 1.2365 by the press time. However, the steady RSI (14) and repeated failures to decline much suggest further recovery of the quote. That said, the 21-SMA surrounding 1.2435 restricts the immediate upside of the GBP/USD price.