Ella 
GBP/USD strengthened for the third consecutive day in early Asian trading on Friday. Upbeat UK inflation data and maintaining risk appetite pushed GBP/USD higher. Investors are awaiting Friday’s UK retail sales report for fresh impetus. UK retail sales are estimated to have fallen 0.5% on month in December, following a 1.3% rise in November. GBP/USD is currently trading around 1.2708, up 0.08% on the day.
UK consumer prices rose to an annual rate of 4.0% from 3.9% in November, undermining market expectations for an early interest rate cut by the Bank of England (BOE). The UK inflation gauge accelerated for the first time in ten months. Former Bank of England policymaker Michael Saunders said he did not see the latest data as contradictory to a broader underlying fall in inflation.
Still, traders trimmed bets on the prospect of a rate cut from the Bank of England. Markets have reduced the probability that the Bank of England will cut borrowing costs by 25 basis points in May to 50% from 80% on Tuesday. This has therefore provided some support for the Pound Sterling (GBP), acting as a “tailwind” for the GBP/USD pair.
Late on Thursday, Atlanta Federal Reserve (Fed) President Raphael Bostic predicted that policymakers will begin cutting interest rates in the third quarter of this year as inflation approaches the central bank’s target. The CME FedWatch tool shows the Fed funds futures market is targeting a first rate cut as early as March. However, the implied probability of the Fed cutting interest rates by 25 basis points in early trading on Thursday has dropped to 57% in recent days.
