GBP/USD looks well bid past 1.3400, Dollar remains on the defensive

GBP/USD retreats from its earlier multi-year high near 1.3470 but continues to hold a firm bullish tone on Wednesday. The Pound remains supported after UK data showed annual CPI inflation accelerated to 3.5% in April from 2.6% in March, lifting sentiment around the currency.

GBP/USD Technical Overview

GBP/USD edges lower following the decisive jump seen in the immediate aftermath of the UK inflation data. Nevertheless, the Relative Strength Index (RSI) indicator on the 4-hour chart remains slightly above 60 after touching 70 earlier in the day, suggesting that the recent pullback is a technical correction and that the bullish stance remains intact.

On the upside, 1.3440 (upper limit of the latest uptrend) aligns as first resistance before 1.3500 (static level, round level) and 1.3550 (static level). Looking south, supports could be spotted at 1.3400-1.3390 (former resistance, static level), 1.3315 (100-period SMA), and 1.3270 (Fibonacci 23.6% retracement of the latest uptrend).

Fundamental Overview

The UK's Office for National Statistics (ONS) reported on Wednesday that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), climbed to 3.5% in April from 2.6% in March. This reading came in above the market expectation of 3.3%. Additionally, the CPI rose by 1.2% on a monthly basis after increasing by 0.3% in March, while the core CPI, which excludes volatile food and energy prices, increased by 3.8% on a yearly basis.

Hot inflation data boosted Pound Sterling with the immediate reaction, as markets scaled down bets of a Bank of England (BoE) rate cut in August. According to Reuters, investors now see a 45% chance of the BoE cutting rates at the August policy meeting, compared to a 60% chance on Tuesday.

In the meantime, the US Dollar (USD) struggles to find demand midweek as markets turn pessimistic about the US and China making progress in trade talks. China’s Commerce Ministry defined the United States' measures on China’s advanced chips as "typical of unilateral bullying and protectionism," and accused the US of violating international law by abusing export controls to contain and suppress China.

Ahead of Thursday's key Purchasing Managers Index (PMI) data releases from the UK and the US, market participants will continue to scrutinize geopolitical developments. A further deterioration of US-China relations could put additional weight on USD's shoulder and help GBP/USD gather bullish momentum.