GBP/USD supported above 1.3000 ahead of key US CPI release

• GBP/USD is trading just above 1.3000 ahead of the release of key US CPI data at 1330BST.
• A mixed UK jobs report did not have a lasting impact on the pair.
• Analysts warn that in a continued strong dollar environment, cable risks slipping towards 1.2850.

GBP/USD continues to trade support to the north of the 1.3000 level in the run-up to the release of key US March Consumer Price Inflation data at 1330BST. Mixed UK jobs data released earlier in the session didn’t give cable traders much to go off of, hence the indecisive trading conditions that have prevailed thus far this session.

On the one hand, the UK jobless rate fell to a fresh post-pandemic low of 3.8% as expected in February, taking it even further below its pre-Covid levels. On the other hand, British earnings growth, when adjusted for inflation, slumped the most since 2013, highlighting the cost-of-living crisis faced in the UK even before the start of the Russo-Ukraine war and tax/energy price hikes as of Q2.

According to ING, "for the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently)”. But the bank cautioned that any sterling strength as a result of BoE tightening expectations would likely play out versus the euro or yen, not the US dollar.

Indeed, the US dollar continues to trade on the front foot on Tuesday ahead of the release of US CPI data that should further reinforce expectations for Fed tightening. The DXY currently trades above 100 and just below its highest levels since May 2020 and more gains may be in store if the recent trend of higher US yields and lower US (and global) equities continues. ING think that in a continued strong dollar environment, GBP/USD is at risk of slipping towards 1.2850.