GBP/USD Holds Near Highs Despite Post-CPI Pullback
Sterling surged to a two-month high near 1.2640 after UK CPI data exceeded expectations, reinforcing expectations that the Bank of England may remain less dovish in the near term. However, gains were short-lived as risk sentiment deteriorated due to renewed concerns over U.S. trade policies and fading optimism for a Ukraine ceasefire. Despite this pullback, GBP/USD remains supported above the daily Ichimoku cloud top at 1.2573, with the pair finding demand near 1.2550 (February 14 low) and 1.2505 (10-day moving average). The pound’s resilience is bolstered by the narrowing UK-U.S. rate differential, as markets anticipate the BoE to cut rates by 50bps this year while the Fed is expected to reduce rates by 35bps.
Technically, GBP/USD continues to trend higher, with key resistance at 1.2641 (Wednesday high), 1.2659 (falling 100-DMA), and 1.2737 (200-WMA). A sustained break above these levels could trigger further bullish momentum, targeting the 200-DMA at 1.2788. Meanwhile, support remains firm at 1.2573, with additional downside protection at 1.2550 and 1.2505. The bullish bias remains intact as long as GBP/USD holds above these levels, with further upside potential if macroeconomic data continues to support a slower BoE easing cycle.
Looking ahead, the Fed minutes could offer further insight into the U.S. rate path, influencing GBP/USD’s next move. Market pricing suggests a 50% probability of a Fed rate cut in June, which, if reinforced by dovish signals, could support further sterling gains. However, risks remain, particularly if the Trump administration intensifies trade rhetoric, which could lift global yields and stall risk appetite. If inflation remains persistently high in the UK, BoE rate cut expectations may be further delayed, strengthening sterling’s position. As long as GBP/USD holds above key support levels, a retest of the 1.2788 200-DMA remains a viable scenario.