GBP/USD spikes higher as the US dollar sells off in a massive turnaround

• The GBP/USD has staged a rapid turnaround rising to a new weekly high.
• The primary driver is a weaker dollar, a significant shift after the initial response to the inflation report.

The GBP/USD is up some 50 pips on the day after trading lower beforehand. The pair reached a high of 1.3972, staging a quick recovery after falling earlier to 1.3800.

The US dollar initially rallied as the US inflation report came out above expectations. Core CPI beat projections by rising by 1.8% y/y against 1.7% that was expected. Other inflation data came also came out above estimates. The specter of a faster pace of rate rises sent the US dollar higher against most currencies. This fear also weighed on stocks.

However, when shares trading began on Wall Street, the drops were not very significant. Stocks turned around and are now trading higher. The VIX volatility index also slipped, indicator calmer trade. The better atmosphere resulted in a sell-off of the US dollar.

GBP/USD Technical picture

The GBP/USD is now trading at the highest levels of the week. The 1.3980 seen when the pair last traded at these levels caps the pair ahead of the round 1.40 level. Further above, 1.4060 was the peak after the BOE.

Looking down, 1.3920 was a double-top earlier in the week and now switches to support. 1.3845 provided limited support and is a notable line. The round number of 1.38 was the low of the day.

The RSI on the 30-minute chart is positive but nears overbought levels. On the other hand, momentum is still robust.