Sterling Rallies as Sticky Inflation Challenges BOE Outlook

The British Pound (GBP/USD) strengthened to trade near 1.3435 on Tuesday, outperforming major peers after UK inflation data for December came in hotter than economists predicted. The surprise print has forced traders to dial back expectations for imminent easing from the Bank of England, widening the policy divergence narrative against the Eurozone.

While the Sterling rally reflects domestic price pressures, broader currency markets are entering a holding pattern ahead of key US economic releases. The US Dollar Index (DXY) holds steady near 98.80, with traders reluctant to place large bets before the release of US GDP and PCE inflation data later this week.

Technical & Cross-Asset Moves

• EUR/USD: The Euro remains under pressure, trading around 1.1700 within a bearish descending channel, struggling to find momentum despite the Dollar's pause.
• USD/CHF: The Swiss Franc has given up ground, with the pair recovering to 0.7950 as risk sentiment improves.

Market focus now shifts to the US session, where strong growth data could reinvigorate the “US Exceptionalism” trade, potentially capping Sterling's gains.