Sterling excels: GBP/USD eyes gains against a strong USD, while GBP/JPY sustains bullish momentum for further advancement.
Pound Sterling Analysis (GBP/USD, GBP/JPY)
Market participants, digesting yesterday’s encouraging economic data, anticipate that the British Pound (GBP) will build on its recent gains against both the US Dollar (USD) and Japanese Yen (JPY). GBP/USD aims to sustain its hard-fought gains amid a resilient USD, while GBP/JPY sets its sights on an ambitious target, awaiting Japanese Consumer Price Index (CPI) data.
Yesterday’s UK Consumer Price Index (CPI) surpassed headline and core measures expectations, leading to downward revisions in interest rate expectations and supporting the pound. Despite persistent inflation concerns, analysts have noted similar trends in inflationary pressures in the UK, the EU, and the US.
However, experts suggest that the inflation surge is likely to be short-term, with disinflation anticipated as long as the Bank of England (BoE) can effectively manage services inflation. Higher tobacco prices, resulting from increased taxation following Jeremy Hunt’s Autumn Statement, are primarily responsible for the recent CPI increase.
Sterling High: GBP/USD and GBP/JPY Aim for Further Gains
GBP/USD Seeks to Hold Gains in the Face of Resilient USD
Today, GBP/USD trades slightly higher, aiming to breach the 1.2736 level. The recent strength of the US dollar, fueled by better-than-expected retail sales data for December, may present a challenge for further upside in the pair. Despite a choppier, sideways trading pattern since mid-December, technical indicators, such as the golden cross and moderate RSI levels, suggest the potential for additional upside.
Despite being considered a centrist, Raphael Bostic from the Federal Reserve could strengthen the dollar with remarks on persistent inflationary pressures, influencing the dollar’s recovery. As the economic calendar dries up towards the end of the week, GBP/USD may experience subdued price action.
Two-Year Gilt Yields Dip Following Initial Rise on Inflation News
Two-year Gilt yields initially rose in response to the news of stickier inflation in December. However, early morning trade during the London session indicates a slight easing, potentially undermining the recent uplift in the pound.
GBP/JPY Sets Ambitious Target Amid Bullish Momentum
GBP/JPY continued its bullish advance yesterday, eyeing 188.80 as the next resistance level. Despite trading slightly lower this morning, recent price action suggests that pullbacks are short-lived, followed by renewed bullish momentum. The yen has faced pressure due to easing wage growth and inflation data, providing the Bank of Japan with room to maneuver before considering significant policy changes. As GBP/JPY remains focused, market participants anticipate potential brief pullbacks amidst the upward trajectory.