- GBP/USD edged lower on Wednesday and retreated further from multi-year tops.
- Some follow-through USD selling was seen as a key factor exerting some pressure.
- The UK CPI figures extended some support to the major and helped limit the slide.
The GBP/USD pair maintained its offered tone through the early European session and had a rather muted reaction to the release of UK consumer inflation figures.
The pair witnessed some selling during the first half of the trading action on Wednesday and retreated further 34-month tops, around mid-1.3900s touched in the previous session. The downtick was sponsored by some follow-through US dollar buying interest, which remained well supported by the recent runaway rally in the US Treasury bond yields.
The market has been pricing in the prospects for the passage of the US President Joe Biden's proposed $1.9 trillion stimulus package. The reflation trade, in turn, pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020, around 1.30% and was seen as a key factor that underpinned the greenback demand.
That said, the downside remains limited amid optimism that the impressive pace of vaccinations in the UK would allow the UK Prime Minister Boris Johnson to lift COVID-19 restrictions and get the economy moving. The British pound was further supported by Wednesday's hotter-than-expected UK CPI, which rose 0.7% in January from 0.6% in the previous month.
Adding to this, the monthly CPI arrived at -0.2% as against -0.4% expected and was accompanied by mostly in line core CPI print. The data, however, did little to impress the GBP bulls, albeit assisted the GBP/USD pair to rebound around 20 pips from daily lows. This, in turn, warrants some caution before positioning for any further depreciating move.
Market participants now look forward to the US economic docket, highlighting the release of monthly Retail Sales data. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.
Technical levels to watch
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