The pound trended broadly higher on Wednesday after the UK’s latest consumer price index printed above expectations.
Meanwhile, Sterling is trading in a wide range so far this morning, with GBP/EUR flat at €1.1994 and GBP/USD ticking up to $1.3636. GBP/CAD and GBP/AUD are muted at C$1.7025 and AU$1.8831, respectively, while GBP/NZD climbs to NZ$2.0119.
Coming up, will some positive US data help underpin the US dollar today?
What’s been happening?
The pound rallied yesterday, with the GBP/EUR exchange rate striking a fresh 23-month high after data showed inflation in the UK rocketed to its highest level since 1992 at the end of last year.
December’s bumper inflation reading was seen as putting additional pressure on the Bank of England (BoE) to adopt a more aggressive approach to monetary policy in 2022, with GBP investors starting to price in additional rate hikes past the widely expected February hike.
Further buoying the pound was confirmation from Boris Johnson that most Covid restrictions in England will be lifted from next week.
The US dollar, meanwhile, fell back on Wednesday, with the ‘greenback’ relinquishing a portion of Tuesday’s gains in response to retreating US Treasury yields.
This pullback in the US dollar helped to bolster demand for the euro thanks to the strong negative correlation between the pairing, but with the single currency’s gains remained capped by ongoing concerns over policy divergence between the European Central Bank (ECB) and other major central banks.
What’s coming up?
Turning to today’s session, the most notable release looks to be the latest US initial jobless claims, where a fall in new claims last week could reflect positively on the US dollar.
Also potentially supporting USD exchange rates will be publication of the Philadelphia manufacturing index which is expected to report an improvement in factory sector activity this month.
In the meantime, finalised figures from the Eurozone are expected to confirm inflation in the bloc accelerated to a record high of 5% in December. EUR investors are hoping the surge in inflation will prompt a policy rethink from the ECB.
Finally, in the absence of any notable GBP data, the direction of the pound may be directed by UK political developments, with any further pressure on the PM potentially dragging on Sterling sentiment.
