- GBP/USD struggled to capitalize on its modest intraday gains to a near three-week top.
- Elevated US bond yields acted as a tailwind for the USD and kept a lid on spot prices.
- Hotter-than-expected UK CPI also failed to impress bullish traders or provide impetus.
The GBP/USD pair surrendered its modest intraday gains to the two-and-half-week high and retreated closer to the daily low. The pair was last seen trading around the 1.3265-1.3260 region, nearly unchanged for the day and had a rather muted reaction to the UK consumer inflation figures.
The pair built on the previous day’s breakout momentum through the top boundary of a multi-day-old trading range resistance and gained some follow-through traction on Wednesday. The prevalent risk-on mood continued acting as a headwind for the safe-haven US dollar, which, in turn, extended some support to the GBP/USD pair. The intraday uptick, however, lacked bullish conviction and faltered just ahead of the 1.3200 mark.
That said, the recent strong run-up in the US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed, helped limit deeper losses for the buck. In fact, the Fed last week indicated it could raise rates at all the six remaining meetings in 2022. Adding to this, Fed Chair Jerome Powell suggested that the US central bank could adopt a more aggressive response to combat stubbornly inflation.
Moreover, San Francisco Fed President Mary Daly noted that it was time to remove policy accommodation, while St. Louis Fed President James Bullard and Cleveland’s Loretta Mester called for faster hikes. The markets were quick to price in a 50 bps rate hike at the next FOMC meeting and pushed the yield on the 10-year US bond to the highest level since 2019. This seemed to have inspired the USD bulls and capped the GBP/USD pair.
On the economic data front, the UK Office for National Statistics reported that the headline CPI accelerated to 6.2% YoY in February from 5.5% in the previous month. Meanwhile, core CPI jumped to a 5.2% YoY rate during the reported month as against 4.4% in January. The readings were hotter than market expectations, though did little to provide any impetus to the British pound amid a dovish assessment of the recent BoE decision.
It is worth recalling that the UK central bank also softened its language around the need for future rate hikes at its meeting last week. Hence, the market focus now shifts to BoE Governor Andrew Bailey’s remarks at the BIS innovation summit. This, along with comments by Fed Chair Jerome Powell at the same event, will influence the USD price dynamics and produce some meaningful trading opportunities around the GBP/USD pair.