• Sterling's reversal finds support at 1.3745 before bouncing back above 1.3800.
• The pair faltered after weaker than expected UK inflation data.
• GBP/USD approaching key resistance at 1.3910/30 – SocGen.

The British pound has resumed its uptrend on Wednesday, to resume the last two weeks’ rally after a corrective reversal seen during the European session. The pair has found buyers at 1.3745, to bounce up again during the US trading time and return above 1.3800, a few pips below one-month highs at 1.3835.

UK inflation figures weigh on the GBP

According to data from National Statistics released earlier today, UK CPI accelerated at a 3.1% yearly pace, and 0.3% on the month in September, missing expectations of  3.2% and 0.4% increments respectively. These figures have dampened expectations of higher consumer inflation, which would add pressure on the Bank of England to accelerate its monetary normalization plan.

The surging energy prices have boosted consumer prices well above the Bank’s target for price stability prompting BoE officials, namely the Bank Governor, Andrew Bailey, to suggest the possibility of accelerating the monetary policy normalization plan, and thus boosting the pound’s rally from late September.  

Sterling's weakness, however, has been short-lived, with the risk-sensitive GBP has buoyed by positive market sentiment. Upbeat quarterly earnings from the healthcare sector have extended the risk-on mood seen on Tuesday, fading concerns higher prices and supply chain disruptions, ultimately weighing on demand for the safe-haven US dollar.

GBP/USD should breach 1.3910/30 to see further appreciation – SocGen

From a technical perspective, the FX analysis team at Société Générale warn about a key resistance area at 1.3910/30: “The GBP/USD pair is approaching potential hurdle of 1.3910/1.3930 representing the recent peak and the 61.8% retracement from June. Overcoming this resistance zone would be crucial for the next leg of rebound (...) Failure to reclaim the 1.3910/1.3930 zone can lead to a short-term pullback. 1.3670 and last week's trough of 1.3570 are near-term supports.”

Technical levels to watch