• GBP/USD gains strong traction for the second straight day and rallies to over a one-week high.
• The upbeat UK jobs report lifts bets for another BoE rate hike and underpin the British Pound.
• The offered tone surrounding the USD provides an additional boost ahead of the US CPI report.

The GBP/USD pair builds on the overnight solid rebound from the 1.2030 area up and gains strong follow-through traction for the second successive day on Tuesday. Spot prices climb above the 1.2200 mark, hitting a one-and-half-week high during the mid-European session, with bulls looking to extend the momentum beyond the 50-day SMA.

The British Pound gets a boost in reaction to the upbeat UK labor market data, which, along with the prevalent US Dollar selling bias, act as a tailwind for the GBP/USD pair. The UK Office for National Statistics Office for National Statistics reported that the number of people claiming unemployment-related benefits unexpectedly fell by 12.9K in January. Furthermore, Average Earnings excluding bonuses were up 6.7% during the three months to December. This marks the fastest rise since records began in 2001, excluding the pandemic period, and could add pressure on the Bank of England (BoE) to deliver another interest rate hike next month.

The USD, on the other hand, extends the previous day's retracement slide from a multi-week high and is pressured by a further decline in the US Treasury bond yields. Apart from this, a generally positive tone around the equity markets further undermines the safe-haven Greenback and provides an additional lift to the GBP/USD pair. Any further move up, however, seems limited as traders keenly await the release of the latest US consumer inflation figures. The crucial US CPI report will play a key role in influencing the Fed's rate-hike path, which, in turn, will drive the USD demand and help determine the next leg of a directional move for the pair.

Nevertheless, a sustained strength beyond last week's swing high, which coincided with the 50-day SMA hurdle, and the 1.2200 mark might have already set the stage for additional gains. Hence, some follow-through strength, back towards reclaiming the 1.2300 round figure, looks like a distinct possibility. Traders, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the US inflation data risk.

Technical levels to watch