GBP/USD finds resistance ahead of 1.33, eases off yearly highs

The GBP/USD pair refreshed its yearly high at 1.3287 during the European trading hours and started to back paddle during the second half of the day. As of writing, the pair was trading 1.3265, still gaining 100 pips, or 0.77%, on the day.

Earlier in the day, the GBP found some solid demand on the back of the macro data from the U.K. According to the data released by the National Statistics, the consumer inflation in the U.K. grew by 2.9% and 0.6% on a yearly and monthly basis respectively in August. Moreover, Retail Price Index jumped to 3.9% from 3.6% on an annual basis and the PPI advanced to 0.4% from 0.1%. All of these data pointed to a higher probability of a tightening move by the BoE, allowing investors to price those expectations. Commenting on the data "inflationary pressures from renewed GBP weakness may, for some MPC members, tilt the growth-inflation policy trade-off in favour of an earlier than anticipated reversal of the post-Brexit emergency monetary stimulus," James Knightley, Chief International Economist at ING, wrote in a recent report.

• UK: Rate risks highlighted by inflation data - ING

However, despite today's sharp rise, the pair struggled to extend its gains during the second half of the day as the greenback remained strong against its rivals. In fact, the US Dollar Index rose above the 92 handle to refresh its 3-day high at 92.06 before turning flat around the 91.90 region. A lack of macro data releases from the U.S. could help the buck push higher in the short-term.

On Wednesday, employment data from the U.K. will be looked upon for fresh clues regarding the state of the UK economy. Markets expect the unemployment rate to remain unchanged at 4.4% and a lower-than-expected numöber could bring another wave of GBP-buying.

Technical levels to consider:

The first technical hurdle for the pair aligns at 1.3290 (daily high) ahead of 1.3345 (Sep. 12, 2016, high) and 1.3400 (psychological level). On the downside, supports could be seen at 1.3160 (daily low), 1.3100 (psychological level/Sep. 8 low) and 1.3000 (50-DMA).

• GBP/USD keeps the bullish mood near term – UOB