- US inflation at 3.1% y-o-y, core CPI at 3.9% suggests persistent inflation affecting rate cut outlook.
- Rising US Treasury yields and a stronger dollar index reflect the market's reassessment of the Fed's strategy.
- The CME FedWatch Tool shows lower expectations for a Fed rate cut in May.
The GBP/USD it falls below 1.2600 as strong economic data from the United States (US) suggests that the Federal Reserve (Fed) will keep interest rates higher for longer. At the time of writing, the pair was trading at 1.2598 after hitting a daily high of 1.2683.
GBP/USD slid on hot US CPI data, traders await UK inflation data
The US Bureau of Labor Statistics (BLS) said inflation slightly beat forecasts in January, surprising traders. Consumer Price index (CPI) for January was reported at 3.1% year-on-year (YoY), which, while lower than in December, beat the expected 2.9%. Core CPI, which excludes volatile food and energy prices, remained steady at 3.9%, beating the expected decline to 3.7% on an annual basis.
After these data, US Treasury bond yields rose slightly and stretched American dollar The index (DXY) at a three-month high of 104.87, just before breaking through 105.00. As CME's FedWatch Tool showed, expectations for a first-rate Federal Reserve cut were pushed back to June as May rates were cut to 36.4% from 52.2% a day earlier.
Meanwhile, UK jobs data showed wage growth slowed again, while job vacancies fell for the 19th consecutive report, falling by 26,000 between August and October. Traders will look to UK inflation data released on Wednesday, with headline price and CPI expected to rise from 4% to 4.2% and 5.1% to 5.2% respectively.
GBP/USD Price Analysis: Technical Outlook
The pair dipped to a three-day low of 1.2575 before rebounding higher, but the bias remains neutral. Although GBP/USD remains above the 200-day moving average (DMA), a daily close below 1.2600 could open the door to a test of the latter at around 1.2562, which could open the door to a challenge of the 1.2500 figure. A break below will reveal the 100-DMA at 1.2484. On the other hand, if buyers retrace the 50-DMA at 1.2671, it could pave the way for a challenge to 1.2700.
