GBP reaches weekly highs against the US Dollar ahead of US inflation data

Daily Currency Update

The Pound holds positive ground against the US Dollar at around 1.2765 during the early European session today. The support in the pound is contributed by the weaker US Dollar and improved risk-on sentiment. Markets await the December US Consumer Price Index for fresh clues to the directions to follow with the potential of 1.28 to be the key barrier of resistance in the currency pair.

Also, the contributing factors adding to the support in pound sterling come from the Bank of England Governor Andrew Bailey who explained yesterday that it’s important to curb inflation towards its 2% target and highlighted further that the UK hasn’t witnessed a rise in unemployment. Bailey also stated that household income has lately increased, which has helped to ease the impact of higher rates on households. As US Federal Reserve officials maintained their data-dependent stance on the US monetary policy and interest rate changes, the US CPI inflation data due to be released holds the key to gauging the timing and the pace of the Fed rate cuts, which could significantly influence the value of the US Dollar and it would be worth noting that the details of the report could also highlight the problem areas of inflation. The high-impact US inflation data for December will be released by the Bureau of Labor Statistics at 13:30 GMT today. Inflation data could change the market’s anticipation of the Federal Reserve interest rate cuts later this year and position more volatility around the US Dollar.

The Euro is under some pressure and weakened against the Pound. Yesterday, the European Central Bank Vice President Luis de Guindos said the eurozone may have been in recession in the last quarter and that prospects in the near term remain weak. Adding to this ECB’s member Isabel Schnabel said the central bank is on the right track to curb inflation while mentioning geopolitical tensions as one of the upside risks to inflation. ECB policymaker Mario Centeno said that the central bank will cut its key interest rates sooner than it recently thought and should not wait until May to make a decision.