• GBP/USD dropped the most in a week after refreshing five-week high, edges lower of late.
  • UK Claimant Count Change eases lesser than expected, Unemployment Rate matches forecast.
  • US CPI m/m drops the most since January, US dollar rallied as tapering fears grew firmer.
  • BOE hawks seek firmer inflation after mixed jobs report, risk catalysts are important too.

GBP/USD bears take a breather around 1.3800 to kick-start Wednesday’s Asian session following a volatile day that refreshed monthly high, before marking the heaviest daily fall in five weeks.

The cable cheered the broad US dollar weakness ahead of the US Consumer Price Index (CPI) data before the market’s rush to risk-safety bolstered the greenback. It’s worth noting that the quote fails to respond much to the latest UK employment figures.

UK job numbers came in mixed with the Unemployment Rate matching the expected weakness to 4.6% during the three months to July versus 4.7% prior. However, the Claimant Count Change came in a bit higher than the forecast of -71.7K to -58.6K in August versus -7.8K previous readouts. Further, Average Earnings Excluding Bonus matched the softer forecast of 6.8% for 3M/yr July period but inched above 8.2% market consensus of 8.2% to 8.3%, compared to 8.8% prior, while including the bonus component.

On the other hand, the US CPI dropped the most since January on monthly basis to 0.3% versus 0.4% expected and 0.5% prior. The CPI ex Food & Energy also dropped below 0.3% expected and previous readings to 0.1% during August, marking the biggest fall in six months.

As the UK employment figures aren’t so sour, hawks among the Bank of England (BOE) policymakers have got a chance to reiterate the bullish bias as the British government is up for booster shots and one vaccine dose to 12-15-year-olds, not to forget easing travel rules for winter. Even so, fears of a third covid wave in the UK and another lockdown challenge the GBP/USD bulls as the death toll rose to 185 while the daily infections eased to 26,628.

Elsewhere, Brexit drama stretches as Britain delays full post-Brexit border checks from the European Union (EU). “The UK is to delay introducing post-Brexit checks on food and farming imports to England, Scotland and Wales, blaming Covid disruption and pressure on global supply chains,” said the BBC. Fears of the EU-UK tussles also escalate after the “BOE Governor Andrew Bailey issued a fresh broadside over the European Union’s post-Brexit plans on clearinghouses, warning any upheaval risked a “real threat” to financial stability,” per Bloomberg.

It’s worth noting that the sour sentiment in the market, recently backed by the Fed tapering concerns weighs on equities and underpin the US dollar’s safe-haven demand, adding weakness to the GBP/USD prices ahead of the key inflation data.

Hence, today’s UK CPI data will be important to watch given the latest chatters over the winding up of the Quantitative Easing (QE) by the BOE’s Husher, also previously backed by the other policymakers. That said, the headline CPI is likely to jump from 2.0% to 2.9% YoY and may help the BOE hawks to reiterate their bullish bias, which in turn could favor the GBP/USD prices in recovering the latest losses.

Technical analysis

Having reversed from 100-DMA, near 1.3915, GBP/USD sellers aim for a three-week-old rising support line near 1.3765.