GBP/USD fades UK CPI-led bullish spike to weekly high, back below mid-1.3200s

• GBP/USD caught some bids following the release of hotter-than-expected UK CPI figures.
• The USD bulls remained on the defensive and further contributed to the strong move up.
• Investors, however, refrained from placing fresh bets ahead of the central bank meeting.

The GBP/USD pair shot to a fresh weekly high, around the 1.3260-65 region in reaction to hotter-than-expected UK inflation figures, albeit quickly retreated a few pips thereafter. The pair was last seen trading with only modest intraday gains, just below mid-1.3200s.

The pair attracted some buying for the second successive day on Wednesday and is now looking to build on the previous day's bounce from sub-1.3200 levels. A softer tone surrounding the US Treasury bond yields kept the US dollar bulls on the defensive through the early European session. This, in turn, was seen as a key factor that extended some support to the GBP/USD pair.

The intraday buying picked up pace after data released from the UK showed that the headline CPI rose 0.7% MoM in November and accelerated to 5.1% YoY. Adding to this, core CPI jumped 4% YoY from 3.4% previous. The readings were well above consensus estimates and provided a strong boost to the British pound, though bulls once again struggled to find acceptance above 200-hour SMA.

Given the imposition of fresh COVID-19 restrictions in the UK, the data did little to revive hopes for an imminent interest rate hike by the Bank of England at its upcoming meeting on Thursday. This, in turn, acted as a headwind for the British pound and kept a lid on any meaningful upside for the GBP/USD pair amid persistent Brexit-related uncertainties.

Investors also seemed reluctant to place aggressive bets, rather preferred to wait on the sidelines heading into the key central bank event risks. The Fed is scheduled to announce its monetary policy decision later during the US session. This will be followed by the BoE meeting on Thursday, which will play a key role in determining the near-term trajectory for the GBP/USD pair.

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