GBP/USD keeps bounce off two-week low around 1.3550 ahead of UK inflation

GBP/USD grinds higher around 1.3545-50 during Wednesday’s Asian session, following a bounce off a fortnight low.

In doing so, the cable pair cheers the softer USD and easing fears over the Russia-Ukraine tussles. However, mixed headlines and cautious mood ahead of the key UK Consumer Price Index (CPI) data test the pair buyers of late.

The US Dollar Index (DXY) reversed from a two-week high the previous day on news that Russia called back some of its troops from borders near Ukraine. However, However, comments from Russian President Vladimir Putin and his US counterpart Joe Biden keep the geopolitical risk on the table and challenge the market’s optimism, despite getting lesser attention. That said, Russia’s Putin conveyed dissatisfaction with how negations are going over Ukraine’s NATO membership while US President Biden said, “Russian attack on Ukraine still very much a possibility.”

Elsewhere, the latest UK jobs report suggests a sustained recovery in employment while also pushing the Bank of England (BOE) towards a stronger battle with inflation. “Britain's labor market is flashing some warning signs for a central bank on guard against a wage-inflation spiral, economists said on Tuesday after official data showed a shrinking workforce and record levels of vacancies,” said Reuters.

Read: UK Unemployment Rate steadies at 4.1% in December vs. 4.1% expected

It’s worth noting that a huge jump in the trade between Ireland and Northern Ireland joins the comments from the former European Union Chief Negotiator Michel Barnier to challenge GBP/USD buyers. “UK Prime Minister Boris Johnson must respect every aspect of the Brexit withdrawal agreements,” said Barnier per CNBC.

On the other hand, the Financial Times (FT) mentions that Boris Johnson’s allies claim he can avoid fine over ‘partygate’ scandal, which in turn keeps the pair buyers hopeful.

Talking about the US data, the US Producer Price Index (PPI) data showed a hot factory-gate inflation figure supporting the Fed’s rate-hike concerns. That said, the PPI rose past 9.1% YoY expectations to 9.7%, versus upwardly revised 9.8% prior, in January whereas the Producer Price Index ex Food & Energy, also known as Core PPI, rallied to 8.3% versus 7.9% market consensus. Additionally, NY Empire State Manufacturing Index eased below 12.15 forecasts to 3.1, compared to -0.7 previous readouts.

Against this backdrop, the US 10-year Treasury yields rose 4.7 basis points (bps) to 2.043% whereas the Wall Street benchmarks also closed positive by the end of Tuesday’s North American session. That said, the US Treasury yields and stock futures remain on the back foot by the press time.

Looking forward, the UK Consumer Price Index (CPI) for January, expected to remain unchanged at around 5.4% YoY, will be crucial as the BOE is on the rate-hike trajectory. As a result, a firmer print will propel the GBP/USD pair’s upside. Following the data, , major attention will be given to January Retail Sales from the US and Federal Open Market Committee (FOMC) Minutes amid chatters of a 0.50% rate lift in March, not to forget Russia headlines.

Read: FOMC Minutes Preview: Dollar selling opportunity? Doves set for a comeback after hawkish meeting

Technical analysis

Although a one-month-old resistance line restricts short-term GBP/USD upside around 1.3560, bears may not risk entries until witnessing a clear downside break of the 100-DMA level surrounding 1.3500.