The Pound Sterling (GBP) recovers back above the 1.2600 handle versus the US Dollar (USD)  on Tuesday, as the Greenback slips on the back of slightly softer US Treasury bond yields.

Traders are gearing up for two big releases that will impact GBP/USD over the next two days – US Consumer Price Index (CPI) inflation data on Wednesday and the Bank of England (BoE) policy meeting on Thursday. 

From a technical perspective, GBP/USD is in a broadly bullish long-term uptrend. Given the old adage that “the trend is your friend” this advantages long over short holders. 

GBP/USD market movers

• The Pound Sterling will probably take direction from the outcome of the Bank of England (BoE) policy meeting on Thursday. A 25 bps interest rate hike is now expected with almost 100% certainty. What is less certain is the bank’s forward guidance, BoE Chairman Andrew Bailey’s comments in the press conference afterwards, and the distribution of member votes. 
• Some observers see possible 60 bps of further rate hikes required to get inflation under control. If true, that would widen the monetary policy divergence between the Bank of England and the Federal Reserve (Fed) – which is widely expected not to raise rates any higher. This would favor the Pound Sterling, as higher interest rate expectations give currencies a ‘carry’ advantage. Carry is the difference between the interest rates of two currencies and measures the benefit of holding the one with the higher interest rate. It is also used in the pricing of many derivatives, such as futures and options. 
• The distribution of voting at the BoE’s last meeting was 7-2, with seven policymakers voting for a 25 bps rate hike and two voting for no change. If the distribution changes either way that will impact GBP with a decrease in the ‘no-change’ camp lifting GBP/USD and vice versa for an increase.
• US Treasury bond yields have risen for three consecutive days, providing the US Dollar with some support, but yields are pulling back slightly on Tuesday, which could be a slight headwind for the USD. 
• The Federal Reserve’s bank Lending Officer Survey (Q1), released on Monday, was broadly negative and suggested credit conditions had tightened due in part to the fallout from the banking crisis. Although the impact on the US Dollar at the time of release was minimal, it may be a factor impacting on yields.
• The release of US Consumer Price Index (CPI) data for April on Wednesday, May 10, at 12:30 GMT, will provide further data for the Federal Reserve to base its future policy trajectory on. Currently expectations are for CPI to increase by 0.4% MoM and 5% YoY. Core CPI is forecast to rise by 0.4% MoM and 5.5% YoY, and is the metric that has the greater impact. A higher-than-expected result would be negative for GBP/USD and vice versa for a lower-than-forecast print.