Will UK CPI shake up sleepy pound?

The British pound has posted slight gains in the Tuesday session. Currently, GBP/USD is trading at 1.3619, up 0.25% on the day.

It has been a quiet start to the week for the British pound. US banks and stock markets were closed on Monday for a national holiday, and the Tuesday data calendar is very light, with no UK data releases and just one minor event in the US. This sets the scene for Wednesday, which could see stronger movement from GBP/USD. The UK will release a host of inflation indicators, highlighted by headline CPI. The index is projected to improve to 0.5% in December, up from 0.3% beforehand.

Wednesday also marks the US presidential inauguration of Joe Biden. Although this event is unlikely to have any direct bearing on the movement of the financial markets, it does herald in a new beginning in Washington, with the official end of the Trump era. The Democrats will occupy the White House and control both houses of Congress and are expected to move quickly with further stimulus measures. However, some fiscal stimulus will require the approval of 60 Senators, so the scale of stimulus may not be as massive as Joe Biden & Co. would like.

The US dollar has rebounded in the New Year, after a sharp slide in the latter part of 2020. The dollar’s newfound strength has been dependent more on the increase in US Treasury yields than on tier-1 releases. This was apparent late last week, as the US dollar recorded strong gains despite weak employment and retail sales numbers in the US. If the demand for US Treasuries continues, we can expect the dollar to continue to move higher.

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GBP/USD Technical

• GBP/USD is putting strong pressure on resistance at 1.3621. Above, there is resistance at 1.3655
• There is support at 1.3536, followed by support at 1.3485
• The pair continues to hover close to the 20-day MA line, which is an important technical level

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