GBP / USD jumps to week-long highs and pulls back, stabilizing near 1.3450 after UK CPI

• GBP / USD drew some lower buying on Wednesday and jumped to week-long highs.
• The warmer-than-expected UK CPI reaffirmed the BoE rate hike and provided a good boost to the pair.
• The Fed’s optimistic expectations should prop up the USD and limit gains amid Brexit woes.

The pair GBP / USD spiked to week-long highs, around the 1.3470-75 region, as an initial reaction to the UK’s hotter consumer inflation figures, although it quickly fell a few pips. At the time of writing, the pair is holding just above the 1.3450 level, still up around 0.25% on the day.

After showing some resilience below the 1.3400 level on Wednesday, the GBP / USD pair attracted new buying amid some profit-taking around the US dollar from a 16-month high. Intraday buying of the pair rebounded after the stronger release of the UK CPI, which beat expectations and accelerated to a 4.2% year-on-year rate in October.

This comes after mostly upbeat UK employment figures released on Tuesday and reinforced the argument for an immediate 15 basis point rate hike in December by the Bank of England. This, in turn, was seen as a key factor that provided a good boost to the GBP / USD pair, though Brexit troubles acted as a headwind for sterling gains.

Investors follow concerned that the UK government may activate Article 16 and suspend parts of the Northern Ireland Protocol. Apart from this, expectations of an early tightening of monetary policies by the Fed should limit the fall of the USD. The combination of factors would limit any significant rally for the GBP / USD pair.

Market participants are now looking forward to data from the US housing market, with building permits and housing starts, to be released at the start of the American session. This, coupled with speeches from influential FOMC members and US bond yields, will boost USD demand and generate some trading opportunities around the GBP / USD pair.

GBP / USD technical levels