Ella 
In early Asian trading on Tuesday, GBP/USD broke its two-game losing streak. A weaker U.S. dollar and lower U.S. bond yields helped GBP/USD rebound. Investors are awaiting UK inflation data due on Wednesday. Annual inflation and core inflation are estimated to have risen 4.4% and 5.5% respectively in November. GBP/USD is currently trading around 1.2653, up 0.05% on the day.
The Bank of England kept interest rates unchanged at 5.25% for a third consecutive meeting, while insisting that borrowing costs need to be capped for an extended period as inflation remains well above the target rate. Bank of England Governor Andrew Bailey said it was too early to start speculating on the prospect of a rate cut. Bailey also said that he does not rule out the possibility of further interest rate hikes by the Bank of England, but we are at the top of the interest rate hike cycle.
However, Bank of England policymaker Ben Broadbent believes that the Monetary Policy Committee needs to see a more sustained and clear signal of decline in inflation before it can confidently conclude that the inflation rate is on a downward trend.
On the other hand, the Fed took a more dovish stance, predicting a possible 75 basis point rate cut in the second half of 2024, while the Bank of England reiterated its tone that rates should remain higher for longer. This is therefore weighing on the US dollar again and acting as a tailwind for GBP/USD.
Data on U.S. building permits and housing starts will be released on Tuesday. With no UK economic data to be released on Tuesday, GBP/USD remains under the influence of the US dollar. Market participants will focus on Wednesday’s UK consumer price index (CPI) and producer price index (PPI) data, as well as US consumer confidence and existing home sales data for December.
