GBP/USD: Bulls defending 1.29 handle ahead of UK CPI

The GBP/USD pair reverses a spike to 1.2920 levels, but manages to hold above 1.29 handle as we progress toward the European opening bells, with all eyes focused on the key UK inflation report.

GBP/USD capped below 10-DMA at 1.2922

The major stalls the overnight recovery, as the bulls take a breather ahead of the UK CPI data, which may show that the UK consumer spending increased last month to 2.6% y/y versus 2.3% seen previously. Rising inflation in the UK economy weighs down on the BOE rate expectations this year.

Further upside in the spot also lacks follow-through as risk-off trades returned to markets amid a retreat in the Asian equities, dulling the attractiveness of the pound as a higher-yielding currency.

Meanwhile, the downside remains cushioned amid persistent broad based US dollar weakness induced by fading chances of a June Fed rate hike, following a series of downbeat US economic data. Also, reports of the US President Trump having disclosed ‘classified information’ to Russia hit the buck further in Asia.

Looking ahead, the UK CPI report is expected to provide the much-need impetus to the GBP/USD pair ahead of the US housing and industrial production data lined up for release in the NA session.

GBP/USD Levels to consider            

A break above 1.2922 (10-DMA) could lift the pair above1.2961 (May 9 high), beyond which a test of 1.2990 (7-week high) is imminent. Conversely, a break below 1.2894 (5-DMA), leading to a subsequent break below 1.2842/29 (May 12 & 4 low) is likely to drag the pair towards testing its next support near 1.2800 (key support).