Paul Spirgel

Sterling bulls can breathe a sigh of relief after soothing CPI reports from the UK and U.S. CPI diminished pressure on the pound emanating from the bond market, but they won't be able to rest for long.

• GBP$ soft in NorAm afternoon, -0.53% at 1.2174; Friday range 1.2245-1.2161

• USD G10 Net spec long grew in Jan 8-14 reporting period; USD index +0.48%

Sterling continued its ascent on Wednesday as the post-Trump inauguration environment remained less austere than expected, though further gains may be elusive if the BoE guides to a less hawkish policy path at its Feb. 6 meeting. UK fiscal uncertainties have also abated amid falling global yields, allowing GBP/USD to distance itself from its year-to-date low by 1.21. Futures show markets expect UK rates to remain well above those in other major economies, supporting the pound versus the euro, Aussie and the Canadian dollar. However, the Fed is expected to keep rates steady until June while the BoE cut twice during that period, eroding the pound's yield advantage and potentially hindering further GBP/USD gains. With the UK economy feeling the deleterious effects high yields, the BoE appears ready, as long as falling inflation permits, to ease to stimulate growth, which could put the Jan. 13 low at 1.21 in focus. The recent break above the 10-DMA at 1.2260 is helping develop a base, but the real test will be near the falling 30-DMA at 1.2447 and key Fib at 1.2455. A rise above these levels will put the daily cloud, spanning 1.2665-1.2794, and the Dec. 6 trend high at 1.2811 in focus. Sterling Chart:

GBP/USD has carved out a slightly higher range following the sterling-benign news flow since the inauguration of U.S. President Donald Trump, but it could remain capped until the administration provides clarity on trade and upcoming central bank meetings illuminate the path of global rates in 2025.

GBP/USD is poised to rally further if U.S. President Donald Trump rhetoric about lower U.S. rates and a softer approach to tariffs materialize. Sterling rose above key resistance at the 30-DMA near 1.2429 in European trading and faces further obstacles at 1.2455, the 50% Fib of the December-January dip from 1.2811 to 1.2100. A

• $IDX -0.98%, USD spec long -1.11bn in Jan 15-21 period on JPY, CAD, AUD buys

• $CAD Firm into Europe close, +0.3% at 1.4392; Monday range 1.4401-1.4334

Sterling drifted lower in early NorAm trade, flirting with support at 1.24, and could face further downward pressure if the Fed holds rates steady as expected later on Wednesday and the BoE cuts on Feb. 6, especially as tariff uncertainties gear up next month.

• $CAD back near pre-BoC cut lvls by 1.4438, 0.25%; Wed range 1.4471-1.4394