GBP/USD bulls attack 1.2500 as US inflation, FOMC Minutes signal Fed policy pivot, UK data dump eyed

• GBP/USD grinds near the highest levels in 10 months, marked in the last week.
• US inflation, Core inflation numbers favor Fed’s 0.25% rate hike in May.
• FOMC Minutes offered no new information and keeps US Dollar, yields depressed.
• More clues of US inflation, UK monthly GDP and Industrial Production eyed for clear directions.

GBP/USD remains sidelined around 1.2480-85 during the early hours of Thursday’s Asian session, following a two-day winning streak to refresh the weekly top. In doing so, the Cable pair portrays the trader’s cautious mood ahead of the UK’s data dump for March while cheering the downbeat signals from the US of late.

An absence of any major positive surprise from the US inflation and the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting exerted downside pressure on the US Treasury bond yields and the US Dollar, which in turn favored the GBP/USD bears. In doing so, the Cable pair also cheered upbeat comments from Bank of England (BoE) Governor Andrew Bailey while paying little heed to Brexit chatters as US President Joe Biden travels to Northern Ireland.

On Wednesday, the US inflation measure, per the Consumer Price Index (CPI), dropped to the lowest level since May 2021, to 5.0% YoY in March from 6.0% prior and versus 5.2% market forecasts. However, the annual Core CPI, namely the CPI ex Food & Energy, improved to 5.6% YoY during the said month while matching forecasts and surpassing 5.5% prior.

On the other hand, FOMC Minutes signaled that the expectations for rate hikes were scaled back due to the turmoil in the banking sector, which in turn offered no fresh information and raised doubts on the hawkish Fed moves, apart from May’s 0.25% rate hike. “Several Federal Reserve policymakers last month considered pausing interest rate increases after the failure of two regional banks and a forecast from Fed staff that banking sector stress would tip the economy into recession,” mentioned Reuters.

Following the data, San Francisco Federal Reserve Bank President Mary Daly said that they had good news on inflation but added that she doesn't want to forecast the end of the tightening cycle. On the same line, Richmond Federal Reserve President Thomas Barkin said on Tuesday, in an interview with CNBC, that inflation certainly has peaked but warned that there are still ways to go. 

With this, the US Dollar Index (DXY) dropped to a one-week low and the Treasury bond yields marked their first daily loss of the week. Further, the CME’s FedWatch Tool suggests a nearly 65% chance of the Fed’s 0.25% rate hike in May versus 72% marked the previous day.

At home, BoE’s Bailey ruled out fears of a banking crisis while adding, “Shouldn't `aim off' rates decision due to crisis.”

On a different page, US President Biden’s Northern Ireland visit promoted the Brexit deal but refrained from any major signals of the US-UK trade pact. “U.S. President Joe Biden said on Wednesday a deal between Britain and the European Union to simplify post-Brexit trade rules would lead to significant investment in Northern Ireland from "scores" of major U.S. companies,” said Reuters.

Looking forward, GBP/USD traders should pay attention to the UK’s monthly Gross Domestic Product (GDP) and Industrial Production (IP) data for immediate directions amid receding hawkish bets of the BoE’s next move. Following that, the US Producer Price Index (PPI) will be eyed for a clear guide.

Technical analysis

Unless providing a daily close below a three-week-old ascending support line, GBP/USD is well set to challenge May 2022 top surrounding 1.2665.