Ella 
GBP/USD attracted some buyers for the second day in a row on Wednesday and looks set to build on the previous day’s rebound from below 1.2600, a one-month low. GBP/USD is currently just below the 1.2700 integer mark, with the market’s reduced bets on an early interest rate cut by the Bank of England (BOE) providing good support.
The Office for National Statistics (ONS) reported on Wednesday that the consumer price index (CPI) rose for the first time in 10 months in December, rising to 4.0% from a more than two-year low of 3.9% recorded last month. In addition, the core index excluding volatile food, energy, tobacco and alcohol prices was flat at 5.1% in December, compared with expectations of 4.9%. Markets reacted quickly, with the probability that the Bank of England will start cutting interest rates in mid-May now falling to about 60% from just over 80% late on Tuesday, which in turn supported sterling (GBP).
On the other hand, the dollar’s short-term rise to its highest level since December 13 saw some profit-taking, turning lower and acting as another support for GBP/USD. That said, investors continue to lower expectations for a rate cut by the Federal Reserve (Fed) in March following the release of upbeat U.S. retail sales data on Wednesday. This remains supportive of a rise in US Treasury yields, which should help limit sharp losses in the greenback and prevent traders from making aggressive bullish bets on GBP/USD.
Meanwhile, speculation that the Federal Reserve will keep interest rates higher for longer, as well as geopolitical risks, continue to weigh on investor sentiment. This is evident in the generally weaker tone for equity markets, which may further benefit USD/GBP’s safe-haven status. Therefore, before confirming that the GBP/USD pair has formed a near-term bottom, it would be prudent to wait for strong follow-through buying and position for further GBP/USD appreciation in the absence of important UK data releases .
