GBP/USD slips from daily peak on weaker UK data, hovers around 1.3100 ahead of US CPI

• GBP/USD draws buyers for second straight day amid modest USD weakness.
• Intraday gains lose steam after disappointing UK macro data release.
• The downside appears limited as traders await the release of the crucial US CPI report.

GBP/USD is building on the modest overnight rebound from the 1.3050-1.3045 region or three-week low and gaining some positive traction for the second day in a row on Wednesday. Spot prices, however, are struggling to capitalize on the move beyond the 1.3100 mark and retreated a few pips in the last hour following the release of UK macro data.

The UK’s Office for National Statistics reported that economic growth was flat for a second straight month in July, compared with expectations for a modest 0.2% increase. Furthermore, UK industrial and manufacturing output unexpectedly fell during the reported month. This comes on top of a slowdown in UK wage growth, raising bets for more interest rate cuts by the Bank of England (BoE) and undermining the British pound (GBP).

The US dollar (USD), on the other hand, is attracting some sellers and for now seems to have snapped a three-day winning streak closer to the monthly peak amid favorable Federal Reserve (Fed) expectations. This in turn provides support for the GBP/USD pair and helps to limit the downside of the GBP/USD pair. Traders also appear reluctant to place aggressive bets and prefer to wait on the sidelines before the release of US consumer inflation numbers.

The key US Consumer Price Index (CPI) report should influence market expectations for the size of the Fed’s interest rate cut at its upcoming September 17-18 policy meeting. This, in turn, will play a key role in boosting USD demand in the short term and provide a significant boost to the GBP/USD pair. However, the fundamental context mentioned above calls for some caution before positioning for a new appreciation move in the currency pair.