GBP/USD rose 0.3% on Monday, but the gains may be misleading given its tendency to retreat from market extremes in either direction recently, while traders are also unlikely to commit to a move before key U.S. and UK inflation reports this week and next.
Cable has yet to break significantly away from its 200-DMA and it remains near the 50% Fib of its recent trend high and low near 1.2540.
Traders will focus on the upcoming U.S. CPI data on Wednesday and the comparable UK report on May 22 to refine relative monetary policy expectations, which remain the key market driver.
Relatively high Fed and BoE policy rates due to elevated inflation in both the U.S. and UK have kept both the dollar and sterling strong versus other majors this year.
Since Fed officials recently tamped down tail risk of a U.S. hike and the BoE shifted to a more dovish rate vote, the upcoming inflation data may be seminal events in near-term rate evolution.
A resumption of the late-2023 inflation slide would increase market betting on a July Fed rate cut, potentially providing a lift for GBP/USD toward its recent flash high at 1.2634.
Similarly, a slide in UK inflation would cap sterling's rise by early April highs at 1.2709.
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