Comment: Sterling bulls may be focused on the wrong inflation data

China Reinsurance (Group)

09/01/2023 15:04

Jan 6 (Reuters) - GBP/USD rose on Monday to its highest in nearly three
weeks, adding to Friday's payrolls and ISM-related gains with the help of China
re-eopening optimism, though bulls may be reluctant to test late-December highs
by 1.2250 ahead of Thursday's key U.S. CPI data.
    Sterling's recent rise off November 2022 lows by 1.1150, has been predicated
on diminishing Fed rate-hike expectations, China reopening and even the BoJ's
policy adjustments as the domestic UK economy remains under the pall of 40-year
inflation highs and deep recession expectations.
    Thursday's U.S. CPI data is expected to headline inflation fell to 6.5%
year-over-year, which has bond market participants leaning on a less-hawkish Fed
hike on Feb. 1. 
    Though headline inflation continues to recede, tamping down on rate
expectations, the Fed's favored inflation metric core PCE, due on Jan 28,
remains stubbornly high. The gap between the Fed's higher rate expectations and
market views will only narrow if core PCE begins to retreat toward the Fed's
target.
    As long as core PCE remains elevated, GBP/USD rallies are likely to be
capped by the mid-Dec. high at 1.2446.    
    For more click on  FXBUZ 
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GBP Chart:     https://tmsnrt.rs/3IzjhoM
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 (Paul Spirgel is a Reuters market analyst. The views expressed are his own)
 ((Paul.Spirgel@thomsonreuters.com))