GBP/USD jumps to over two-week tops, around 1.3700 mark

The GBP/USD pair shot to over two-week tops during the early European session, with bulls now looking to build on the momentum beyond the 1.3700 mark.

The US dollar struggled to preserve its modest intraday gains, instead met with some fresh supply on Thursday and extended the previous day's retracement slide from 13-month tops. A softer tone around the longer-dated US Treasury bond yields undermined the greenback, which was further pressured by the risk-on impulse in the markets. This, in turn, was seen as a key factor that pushed the GBP/USD pair higher for the second successive day.

The US CPI report released on Wednesday showed a continuous rise in inflationary pressures. Investors, however, still seem unconvinced about a sustained period of inflation, which was reinforced by a decline in the US bond yields. This, to a larger extent, overshadowed hawkish FOMC meeting minutes, which indicated that the US central bank remains on track to begin tapering its bond purchases in 2021 and continued undermining the greenback.

Moreover, a growing number of policymakers were worried that inflation could persist, forcing investors to bring forward the likely timing of a potential Fed rate hike move. The markets now seem to be betting on the possibility of the so-called lift-off in September 2022 as against December 2022 already priced in. The developments, however, did little to impress the USD bulls or stall the GBP/USD pair's ongoing positive momentum.

On the other hand, the British pound drew some support from easing worries about the UK-EU stand-off over the Northern Ireland Protocol. The EU on Wednesday offered to reduce customs checks and paperwork on British products intended for NI. This comes after the Bank of England officials signalled an imminent rate hike and acted as a tailwind for the sterling.

With the latest leg up, the GBP/USD pair has now rallied over 130 pips from weekly lows touched on Tuesday and remains on track to appreciate further. Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims. This, along with the US bond yields and scheduled speeches by influential FOMC members, will influence the USD and provide a fresh impetus.

Technical levels to watch