GBP/USD rallies to 1.3875 region post-US CPI, lacks follow-through

• GBP/USD staged a goodish intraday bounce from the 1.3800 mark, or over two-week lows.
• Mixed US inflation figures prompted some USD profit-taking and provided a goodish lift.
• The lack of any strong follow-through buying warrants some caution for bullish traders.

The GBP/USD pair caught some aggressive bids during the early North American session and shot to fresh daily tops, around the 1.3870-75 region in reaction to mixed US inflation figures.

The pair found decent support and attracted some dip-buying near the 1.3800 round-figure mark, or over two-week lows touched earlier this Wednesday. The intraday recovery move got an additional boost following the release of the US consumer inflation figures, which prompted some profit-taking around the US dollar.

The headline CPI decelerate to 0.5% in July from the 0.9% increase recorded in the previous month. Adding to this, core CPI, which excludes food and energy prices, rose 0.3% MoM against 0.4% expected and June's 0.9%. This, along with Richmond Fed President Thomas Barkin's comments, weighed on the greenback.

Barkin noted that it may take a few months more for the US job market to recover enough for the Fed to reduce its crisis-era support for the economy. The combination of factors forced investors to trim their bets for an earlier Fed tapering. This was evident from a sharp pullback in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year US government bond slumped back below the 1.35% threshold. Apart from this, a slightly positive risk tone further acted as a headwind for the safe-haven greenback. That said, the lack of any follow-through buying around the GBP/USD pair warrants caution for bullish traders.

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