- GBP/USD has extended its sideways grind above 1.2600 into a second straight day on Wednesday.
- Investors stay on the sidelines ahead of US inflation data, BoE policy announcements.
- 1.2650 aligns as key near-term resistance for the pair.
GBP/USD has been moving up and down in a tight range above 1.2600 early Wednesday following Tuesday's indecisive action. April's inflation report from the US could trigger a short-term reaction in the pair ahead of the Bank of England's (BoE) policy announcements on Thursday.
Although the US Dollar Index extended its recovery amid risk aversion on Tuesday, GBP/USD managed to hold its ground. Investors seem to be reluctant to bet on Pound Sterling weakness on the possibility of a hawkish BoE surprise. HSBC noted recently that it see the risk of a "few" votes for 50 bps increase, based on recent UK data.
Having said that, inflation data from the US could trigger a straightforward market reaction and impact GBP/USD in the American session on Wednesday. The headline Consumer Price Index (CPI) in the US is forecast to rise 5% year-on-year in April, the same as in March. The Core CPI, which excludes volatile food and energy prices, is expected to increase 0.4% on a monthly basis.
Market participants remain fairly certain that the US Federal Reserve will pause its tightening cycle in June in the face of tightening financial conditions. A stronger than expected increase in the Core CPI in April could cause investors to reassess the Fed's rate outlook and provide a boost to the US Dollar (USD) in the near term. On the flip side, a soft monthly core inflation reading should help GBP/USD gather bullish momentum.
Nevertheless, GBP/USD's reaction might not be strong enough to provide a directional clue with the BOE's rate decision looming.
GBP/USD Technical Analysis
GBP/USD continues to trade within the lower half of the ascending regression channel. The Relative Strength Index (RSI) indicator on the four-hour chart stays near 50, highlighting the lack of directional momentum.
On the downside, 1.2600 (psychological level) aligns as interim support ahead of 1.2565 (50-period Simple Moving Average (SMA) on the four-hour chart, lower limit of the ascending channel). A four-hour close below the latter could attract sellers and cause GBP/USD to decline toward 1.2500 (psychological level, 100-period SMA).
First resistance is located at 1.2650 (mid-point of the ascending channel). If GBP/USD rises above that level and starts using it as support, 1.2670 (Monday high) and 1.2700 (psychological level) could be targeted.
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