GBP/USD trades with positive bias below 1.3400, remains close to multi-week low ahead of UK CPI

GBP/USD gains some positive traction as the USD enters a bullish consolidation phase.
Reduced Fed rate cut bets and a weaker risk tone act as a tailwind for the Greenback.
Traders now look forward to the UK CPI report and the US PPI print for a fresh impetus.

Haresh Menghani FXStreet

The GBP/USD pair ticks higher during the Asian session on Wednesday, though it lacks follow-through buying and remains below the 1.3400 round-figure mark. Moreover, spot prices remain close to a three-and-a-half week low touched on Tuesday and seem vulnerable to prolonging the recent downward trajectory witnessed over the past two weeks or so.

The US Dollar (USD) is seen consolidating its recent strong gains to the highest level since June 23 and is seen as a key factor lending some support to the GBP/USD pair. However, diminishing odds for a near-term reduction in borrowing costs by the Federal Reserve (Fed), amid concerns that US President Donald Trump's trade tariffs would boost inflation, should act as a tailwind for the buck.

The expectations were reaffirmed by the latest US consumer inflation figures released on Tuesday. Adding to this, comments from influential FOMC members suggested that the US central bank will keep interest rates elevated for an extended period. Apart from this, a generally weaker tone around the equity markets could further benefit the safe-haven buck and contribute to capping the GBP/USD pair.

The British Pound (GBP), on the other hand, continues with its struggle to attract any meaningful buyers amid the growing acceptance that the Bank of England (BoE) could reduce interest rates in August. Traders, however, seem reluctant to place fresh bearish bets around the GBP/USD pair and opt to wait for the release of UK consumer inflation figures and the US Producer Price Index (PPI) later today.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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