On Tuesday, higher-than-expected UK CPI numbers gave the GBP/USD a boost.
The bid tone surrounding the major was supported by a restrained USD demand.
Hawkish Fed predictions could assist restrict the USD’s decline and minimize the pair’s gains.
The market’s attention is still focused on Federal Reserve Chair Jerome Powell’s congressional hearing.
During the first part of the European session, the GBP/USD pair continued to climb higher, reaching new daily highs around 1.3860 in the previous hour.
After successfully defending the 1.3800 level on Tuesday, the GBP/USD pair caught some new bids on Wednesday, recouping some of the previous day’s losses. Following the release of higher-than-expected UK consumer inflation numbers, the British pound gained a small boost. Indeed, the UK Office for National Statistics (ONS) stated that the headline CPI grew 2.5 percent YoY in June, compared to consensus projections of a 2.2 percent increase from the previous month’s 2.1 percent.
This was the highest level in nearly three years, and it was accompanied by a stronger-than-expected rise in the core CPI. The measure (which excludes volatile food and energy products) increased to a YoY rate of 2.3 percent in the reporting month, up from 2.0 percent in May. This, combined with a lower demand for the US dollar, served to alleviate concerns about the extremely contagious Delta version of the coronavirus, giving the GBP/USD pair a slight boost.
A minor dip in US Treasury bond yields left the USD bulls on the defensive as markets looked beyond Tuesday’s higher US CPI reading. Expectations that the Fed would tighten its monetary policy sooner than expected, on the other hand, could help limit any significant USD decline. This, in turn, may keep a lid on any rapid advance in the GBP/USD pair, at least for the time being, so aggressive bullish traders should be cautious.
Investors may also choose to stay on the sidelines ahead of Fed Chair Jerome Powell’s semi-annual congressional appearance on Wednesday and Thursday. Powell’s comments may alter expectations about the Fed’s policy outlook, which will drive the USD and provide the GBP/USD pair a new directional impetus./n
