GBP/USD breaks through 1.2200 barrier amid US inflation data.

• GBP/USD adds to its intraday gains and hits a one-and-a-half-week high amid a brutal drop in the dollar.
• A weaker US CPI report pushed back expectations of a further Fed rate hike and weighed on the dollar.
• The strong rally in US equity futures puts additional downward pressure on the safe-haven dollar.

The pair GBP/USD receives aggressive offers and breaks above the 1.2200 level, reaching a maximum of one and a half weeks during the beginning of the American session.

Intraday US dollar selling picks up on the release of weaker US consumer inflation data, which in turn provides a good boost to GBP/USD. The Bureau of Labor Statistics reported that the US headline CPI was flat in July, versus an expected 0.2% rise. In addition, the annual rate slowed down to 8.5% in the reference month, which also exceeded estimates that pointed to a drop to 8.7% from 9.1% in June.

Furthermore, core inflation, which excludes food and energy prices, came in at 0.3% MoM and held at 5.9% YoY, vs. 0.5% and 6.1% forecast, respectively. The weaker data appears to have pushed back market expectations of a further Fed rate hike at the September policy meeting and triggered aggressive selling around the dollar. In addition, the strong rally in US equity markets puts additional pressure on the safe-haven dollar.

The strong intraday rally allowed the GBP/USD pair to break above the 1.2130-1.2140 resistance zone, triggering an aggressive short-covering move. So it remains to be seen whether the momentum is underpinned by genuine buying or turns out to be a stop run amid the gloomy economic outlook from the Bank of England.

Technical levels