GBP/USD gains limited as UK inflation rise masks dovish BoE outlook

Sterling's initial bounce following stronger UK inflation data appears superficial as underlying policy dynamics suggest a softer Bank of England stance ahead. While the headline inflation uptick provided temporary support for GBP/USD, deeper analysis reveals persistent disinflationary pressures in core components and weakening economic growth prospects. The pair rallied briefly above 1.2350 but struggled to maintain momentum as traders digested the likelihood of continued BoE rate cuts in 2025. Market pricing now reflects expectations for at least two quarter-point cuts by mid-year, despite the marginal inflation increase. Technical resistance at 1.2400 remains intact, with support levels at 1.2300 and 1.2250 likely to be tested if dovish BoE sentiment persists. The disconnect between headline inflation figures and underlying economic weakness suggests limited upside potential for sterling, with traders advised to fade rallies ahead of next month's BoE policy meeting.