GBP/USD pulls back from four-week highs as dollar erases US CPI losses.

• The dollar falls after the CPI data, although it cuts losses after the opening of Wall Street.
• Inflation confirms slowdown in the US, Fed’s Harker now expects increases of 25 basis points.
• GBP/USD pulls back hard and falls below 1.2100.

In a volatile session for currencies, the US dollar has turned sharply over the past hour and turned positive overall. The pair GBP/USD peaked after the release of US inflation data in 1.2244, the highest level in four weeksand at the time of writing these lines, trades at 1.2155 after recovering from levels below 1.2100.

The dollar falls and then rises

Inflation data sent the dollar tumbling, which then rallied as stocks fell on Wall Street after the opening bell.. The US Consumer Price Index fell 0.1% in December and the year-on-year rate slowed to 6.5% from 7.1%, hitting the lowest level since October 2021.

Following the inflation numbers, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said it was time for future Fed rate hikes will move to 25 basis point increases. His comments fueled the dollar’s slide as US yields plunged.

Stocks on Wall Street turned negative after the open. The deterioration in market sentiment was accompanied by a rebound in US yields. The US dollar reversed course and rallied, erasing all the losses from the US CPI.

The GBP/USD struggles to stay above 1.2100 while the markets continue to digest the CPI figures and the dollar continues to search for a direction. The pound has also weakened over the past hour against the euro, and the pair EUR/GBP hit 0.8890, the highest level since late September.

GBP/USD technical levels