GBP/USD retreats towards 1.2450 as UK inflation misses the mark

• GBP/USD takes a U-turn from intraday high after softer-than-expected British inflation data.
• UK CPI refreshes record top with 9.0% YoY figures in April but stays below 9.1% forecast.
• Market’s risk-off mood challenges the recovery moves amid lack of major data/events.
• Headlines concerning Russia, China and Fedspeak will be crucial, US housing numbers eyed too.

GBP/USD fails to cheer record high UK inflation as the figures missed market consensus. That said, the cable pair takes offers around 1.2475 after April’s Consumer Price Index (CPI) came in softer-than-expected during early Wednesday morning in Europe.

That said, the UK CPI rose to 9.0% YoY versus 9.1% expected whereas the Core CPI matched the 6.2% YoY forecast, compared to 5.7% prior.

Read: Breaking: UK annualized inflation jumps 9% in April vs. 9.1% expected

While the UK inflation numbers underpin the GBP/USD pair’s latest moves, challenges to risk appetite, Brexit moves and firmer USD are extra catalysts that challenge the upside momentum.

A fresh rise in China’s covid numbers and Shanghai’s refrain from total unlock joins while the European Union (EU) and the US preparations for more hardships for Russia, due to Moscow’s invasion of Ukraine, to weigh on the market sentiment.

Also souring the mood were comments from Chicago Fed President Charles Evans as he said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.

It should be noted that the European Union’s (EU) readiness to offer an olive branch to the UK, to stop the British administration from repealing the Northern Ireland Protocol (NIP), seems to have acted as a positive catalyst of late. However, Britain remains determined to alter part of the NIP and the bloc eyes hard steps on trade deals if the UK does that, which in turn keeps the Brexit risk high.

On Tuesday, the UK’s jobs report bolstered the odds of the Bank of England’s (BOE) faster/heavier rate hikes, preceded by BOE Governor Andrew Bailey’s comments suggesting more inflation fears ahead.

Against this backdrop, the US 10-year Treasury yields seesaw around 2.98% whereas the S&P 500 Futures decline 0.20% intraday even as Wall Street posted heavy gains.

Having witnessed the initial reaction to the UK inflation data, GBP/USD traders will pay attention to the Brexit headlines and other risk catalysts, as well as the US Housing Starts and Building Permits for April, for fresh impulse.

Technical analysis

Although the 20-DMA level near 1.2500 tests the GBP/USD buyers, a clear break of the one-month-old descending trend line, around 1.2250 at the latest, joins the firmer RSI line to underpin bullish bias. Additionally, two-week-old horizontal support around 1.2400 could restrict the short-term pullback.