There will be a reluctance to sell Sterling ahead of Thursday’s Bank of England meeting, although selling will resume if there is dovish rhetoric.
The dollar was unable to make further headway later in US trading on Tuesday with the dollar index hitting resistance close to the 92.0 level before fading slightly.
Underlying Sterling sentiment remained stronger following the highest than expected inflation reading and GBP/USD was able to make further headway. After initially hitting selling interest above the important 1.3270 resistance area, but there was a sustained break above this level later in the session which pushed GBP/USD towards 1.3300.
GBP/USD maintained momentum in early Europe on Wednesday with a fresh 12-month peak near 1.3330 before drifting weaker into the latest UK labour market data.
Unemployment declined to a fresh 42-year low of 4.3% and there was a second successive decline in the clamant count which suggested a strong labour market, but there was a weaker than expected reading of average earnings of 2.1%.
Weaker than expected earnings data triggered fresh doubts surrounding Bank of England tightening and Sterling moved lower with GBP/USD dipping to the 1.3270 area.
The latest US producer prices data is unlikely to have a major impact ahead of the important CPI release on Thursday, although a very strong reading would trigger some further dollar support.
There will be caution ahead of Thursday’s Bank of England policy decision with markets still wary over the potential for more hawkish rhetoric from the Monetary Policy Committee.
GBP/UD 4-Hour Chart