GBP/USD fails to hold above 1.2100 and trims gains

• Quiet session on Tuesday awaiting the US CPI.
• DXY falls modestly, remains above 106.00.
• GBP/USD is flat on the day, holding above the 20-day SMA.

The GBP/USD remains modestly below 1.2100 in a quiet session. The pair peaked at 1.2130 and then pulled back to 1.2077. The US dollar is mixed as market participants await the July US CPI release.

Quiet session, inflation data on the radar

Stocks on Wall Street fell on Tuesday, with the Dow Jones down 0.09% and the Nasdaq down 1.44%. Treasury bonds down slightly. US 10-year bond yields rose to 2.81% and then fell back to 2.78%, with 30-year bond yields peaking at 3.03% and back below 3%.

In the foreign exchange market, pairs move sideways, in small ranges. Dollar Index Falls 0.19%; remains above 106.00.

On Wednesday the CPI index for July in the United States will be published. The market consensus is for the annual rate to drop from 9.1% to 8.7%. An upside surprise could trigger a rally in the US dollar as it would support expectations of a hawkish Fed, especially after the upbeat jobs report in July.

In the UK, attention remains on the Tory race to succeed Boris Johnson. The favorite is Liz Truss. She has said that she does not want to give handouts to families and that she prefers to prioritize tax cuts. The rise in the energy bill continues to put pressure on the Government.

As for the Bank of England, Deputy Governor Dave Ramsden said they would probably need to raise interest rates again to help curb inflation. The question is how much it will raise them: 25 or 50 basis points.

From a technical point of view, GBP/USD failed to hold above 1.2100, showing a lack of strength. A break above 1.2130 should point to more gains, targeting 1.2180. The bias for the next few hours looks to the downside as long as it is below 1.2110. Critical support can be seen at 1.2065.

Technical levels