GBP/USD takes a sharp U-turn post-UK CPI, drops to 1.2875

The bulls ran into 1.2950 resistance following the release of UK CPI report, knocking-off the GBP/USD pair sharply in a bid to test Monday’s low at 1.2872. However, fresh bids emerged near the last, sending the rate back towards 1.29 handle.

GBP/USD dives on fading BOE rate hike bets

The major faded a knee-jerk spike to 1.2946 on upbeat UK CPI release and dived in the red zone, as markets assessed the implications of increasing trend in the UK consumer prices and its impact on the BOE’s next monetary policy move.

Firming price pressures in the UK economy pour cold water on a BOE rate hike this year. At its May monetary policy meeting, the BOE warned that higher inflation will hit households, while slashing growth forecast for 2017.

Moreover, a minor-recovery in the US dollar against its major rivals also collaborated to the aggressive selling seen in the major over the last hour. The USD index bounced-off a dip to fresh half-yearly lows at 98.36, and now reverts to 98.50 levels, still down -0.31% on the day.

Also, mixed performance seen on the European indices keeps risk-off trades alive, weighing negatively on the risk-currency GBP. With the UK macro news out of the way, all eyes remain on the US housing starts, building permits and industrial production data for fresh impetus on the greenback, which will eventually impact GBP/USD.

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 1.2872 (May 15 low), 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).