Pound slides against the US dollar as sterling remains on the defensive
The pound (GBPUSD=X) lost some ground to the dollar on Monday as the US currency edged toward a five-week high as investors increased bets on the Federal Reserve keeping monetary policy tight for longer.
The pound was trading at around 1.2045 against the dollar, a 0.5% drop and a second straight day of losses for the currency.
Sterling remains on the defensive after data released on Friday showed that while the UK narrowly avoided a technical recession in the final quarter of 2022, gross domestic product (GDP) still fell 0.5% on the month in December.
Monday is unlikely to generate large price swings in cable with market participants exercising caution ahead of Tuesday’s key economic releases, with the pound risking further downside against the dollar.
Read more: FTSE 100 higher ahead of key inflation data
A strong reading from the US CPI data would drive expectations of tighter monetary policy from the Federal Reserve, likely sending the dollar higher.
"This week’s US CPI is one of the most pivotal prints in recent memory," said Barclays analysts in a note.
"The dollar has rallied on the back of ... US labor market strength but the evolving narrative is set to be updated yet again on Tuesday."
Sterling risks a fall if a stronger-than-expected rebound in US inflation conspires with resilient retail sales to push the US Federal Reserve to move away from aggressive interest rate hikes. But if the figures are disappointing, the pound could jump, according to analysts.
Read more: Inflation is ‘guaranteed’ to fall, insists Bank of England
"GBP/USD can lift this week if the USD eases as we expect. GBP/USD can also receive support if UK average weekly earnings growth or the core CPI shows no signs of cooling," said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.
Watch: Why investors should listen to Jamie Dimon on inflation
Download the Yahoo Finance app, available for Apple and Android.
