COMMENT-Aiming higher, sterling still has key inflation tests ahead

GBP/USD has set its sights on 55-DMA resistance at 1.2601 and the May 3 high at 1.2634 after overcoming an initial wobble following mixed PPI data, but it may have to weather Wednesday's CPI report to reach those milestones.

GBP/USD struck an eight-day high as downward PPI revisions offset above-forecast results for April though the rally has been somewhat tempered as traders await Wednesday's more meaningful U.S. CPI, which should give a clearer picture of the path of U.S. inflation.

With progress diminishing U.S. inflation, both core and headline, having stalled recently Wednesday's data will be key, where all outcomes, bringing forward rate cuts, holding steady for a likely September cut, or a more hawkish policy path should inflation rise, are all on the table.

Reuters consensus forecast is for slight dips in core and headline inflation.

If those forecasts are correct, sterling will likely remain anchored in its current range awaiting UK CPI on May 22. A U.S. CPI surprise higher or lower will test recent flash highs or lows at 1.2634 and 1.2446.

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