Sterling Holds Gains Ahead of UK CPI, BoE Decision

GBP/USD held near the 1.3450 mark on Tuesday, extending a recovery from the 1.3300 zone that took hold in late April. The move higher drew support from an improving geopolitical picture that sparked risk appetite and weighed on the dollar.

Traders now look to two UK events this week. May inflation data lands Wednesday. The consensus forecast calls for the annual CPI to rise to 3.0% from 2.8% in April. A number at or above that level would strengthen the case for the Bank of England to raise rates in the coming months. The central bank's Monetary Policy Committee meets Thursday and is widely expected to keep the benchmark rate unchanged at 3.75%. The tone of the statement and the vote count will matter for sterling positioning.

A hot CPI print would reinforce expectations for a rate hike later this year. A miss to the downside would push back those expectations and likely weigh on Cable. The BoE is expected to hold. The vote split and forward guidance will be key. A hawkish hold with more members voting for a hike would support the pound. A dovish tone would cap gains.

The daily chart shows a mixed picture. The short-term momentum is turning. The 14-day relative strength index has moved back above the 50 line. The momentum oscillator is about to cross into positive territory. That shift supports the constructive outlook.