• GBP/USD is consolidating the UK data-driven spike. 
• US Dollar is firming up as yields rally, Fed and BoE in focus. 

GBP/USD is up 0.13% at the time of writing and has traveled between a low of 1.2392 and 1.2475 while data today confirmed that Britain has the highest inflation in Western Europe, solidifying the consensus that the Bank of England's meeting in May will result in a rate hike.

Data on Wednesday showed consumer prices rose by an annual 10.1%, the Office for National Statistics said, down from 10.4% in February but higher than the 9.8% forecast by economists polled by Reuters.

´´For the second month in a row, headline UK CPI inflation has failed to match the consensus expectation of a below 10% YoY reading.  As in various other G10 economies the UK core rate is showing signs of stickiness, remaining in line with the previous month’s rate at 6.2% YoY and only slightly below the rates registered in the final months of last year,´´ analysts at Rabobank explained. ´´Indeed, there has been very little change in the value of core UK CPI inflation over the past 12 months.´´

Looking back to yesterday, data showed British wages rose faster than anticipated last month, further supporting more hikes by the BoE. In this regard, the market is currently pricing in a 99% chance of a 25 bp rate hike from the Bank of England at its next meeting. 

However, the greenback has tamed the rally due to rising Treasury yields. The US Dollar index, which tracks the currency against a basket of its peers, was up 0.24% as markets turn more skeptical that the Federal Reserve will cut rates later this year. The yield on the two-year Treasury notes which are sensitive to Fed expectations has run to a high of 4.286%.

´´ Indeed, based on our view that further bouts of USD strength are likely this year, we see risk of dips to GBP/USD1.20,´´ analysts at Rabobank said.