- GBP/USD bulls are in the market and eye higher highs.
- Bears note the prospects of a test of the trendline support.
GBP/USD bulls are in the market with the price rallying on Tuesday from a low of 1.2495 to a high of 1.2624 so far. Traders are getting behind the central bank divergence theme which has helped the pound reach to the strongest since May 10th as recent US inflation rate data reinforced the view that the Federal Reserve is about to change course.
Besides the sentiment turning at the Fed, the recent UK labour market report has sewn the seeds for a hawkish Bank of England for longer. The unemployment rate fell to 3.8% for the period of February to April, while both employment levels and wage growth experienced significant increases. This follows Monday's hawkish rhetoric from BoE's policymaker Catherine Mann who emphasized a need to take measures to curb inflation.
On Tuesday, data showed that the US Consumer Price Index edged up 0.1% last month after increasing 0.4% in April, core CPI increased 0.4% in May, rising by the same margin for the third straight month. However, the Greenback pared back initial knee-jerk losses as this is a number that is too high to be compatible with the Fed's 2% inflation target, thus there are still chances that the FOMC will justify another 25-bp rise at the outcome of the FOMC meeting.
Nevertheless, GBP/USD remains better bid with the money markets pricing in a 95% chance the US central bank will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on Wednesday. Moreover, the rate futures market also trimmed bets on a Fed rate hike in July following today's CPI report.
GBP/USD daily chart
The daily chart is bullish while above 1.2285 swing low. There are prospects of a meanwhile correction, however, which leaves the trendline support vulnerable.
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