GBP/USD bulls revisit close to the European highs ahead of US CPI

• GBP/USD bulls come up for air ahead of the US CPI data on Wednesday. 
• The BoE is coming up this week also, making for a key week for Cable. 

GBP/USD is flat on the day but showing signs of resilience as it creeps towards the prior highs set in the European session on Tuesday near 1.2639. In the Toyo open, the price is making a high of 1.2634 so far and has risen from a low of 1.2608. 

The markets are jittery ahead of key events this week, including the Bank of England (BoE) policy decision. The pair is correcting higher since losing territory from where it touched 1.26680 at the start of this week. This was the strongest level since April 26 2022. 

The BoE has raised interest rates 11 times since December 2021 as it battles to bring down double-digit inflation. The markets are predicting a 98% chance of a 25 bps hike from the BoE.

Meanwhile, the Pound is also finding support on stronger-than-expected economic data in the UK of late and is leading investors to believe that the nation might just avoid a recession after all. Sterling has also benefitted from a softer US Dollar that has been pressured by the belief in markets that the Federal Reserve is coming towards the end of its rate hiking cycle.

´´Last week’s stronger than expected US labour market data underpinned the stickiness of wages and inflation pressures on the other side of the Atlantic,´´ analysts at Rabobank said. ´´As a result, the market withdrew some of the projected Fed easing that has been anticipated for the end of this year.´´

´´It is our view that there will be no easing in policy from the Fed until next year.  We foresee some support for the USD in the coming months as 2023 rate cuts are fully priced out.  We see scope for GBP/USD to push back to 1.22 on a 3-month view,´´ the analysts at Rabobank concluded.

For the immediate future, we have the US inflation figures coming out today which will provide more direction on the world's largest economy's battle against inflation. ´´Core prices likely stayed firm in April, with the index rising a strong 0.4% MoM for a second straight month, as goods inflation likely continued to strengthen,´´ analysts at TD Securities said. ´´Shelter prices likely remained the key wildcard (we look for a rebound), while rising gas prices (+2.6% moM) will likely lift non-core inflation. Our MoM forecasts imply 5.0%/5.5% YoY for total/core prices.´´

As for the Federal Reserve, with respect to this data release, the central bank has opened the door to a pause after hiking by 500bp. The Fed remains concerned about inflation being too high and will raise rates further if appropriate. The event is key as the Fed is highly data-dependent and going forward, the Fed has stated that policy will be considered on a meeting-to-meeting basis.