GBP/USD holds steady in Asia ahead of the key US CPI data

• GBP/USD is steady in anticipation of the key US event in US CPI.
• Central bank divergences are the driving force in the majors this week. 

GBP/USD is flat on the day and sitting patiently between 1.3526 and 1.3538 ahead of today;'s key event in the US Consumer Price Index.

The pound initially benefitted on the back of a soft dollar at the start of the week and dovish pivots in central bank sentiment at the European Central bank. However, the pound was a touch lower against a firmer single currency amid continued deep uncertainty about the future trajectory of the Bank of England’s monetary policy.

Bank of England Chief Economist Huw Pill was crossing the wires on Wednesday explaining that it was ''reasonable for central banks to withdraw from providing detailed guidance on the policy outlook as prospects for the economy were not clear cut,'' as Reuters reported. 

Meanwhile, the money markets have priced up the 25 bps rate increase that is expected of the BoE this March and 125 bps by December 2022. Therefore, the pound could stand up in the face of a correction in the greenback more so than the euro on central bank divergences. 

US CPI in focus

The CPI print may offer support to a downtrodden US dollar today if markets move on any new hawkish indications about the pace of the Federal Reserve's monetary tightening in the data. A higher-than-expected number would signal more aggressive interest rate hikes and would be expected to lift the value of the greenback across the board. That readout is expected to show a 0.5% month-over-month increase in January, and 7.3% for the year, according to economists polled by Reuters.

As for Fed speakers, the Cleveland Fed President Loretta Mester spoke on Wednesday and argued that future rate increases after March will depend on the strength of inflation and how much it moderates or persists. Atlanta Fed President Raphael Bostic said that he was still leaning toward a slightly faster pace of interest rate increases this year.

'US CPI data tonight is important and will help settle the debate as to whether the Fed will lift off with a 25bp or 50bp hike. But it’s not clear the latter would actually benefit the USD,'' analysts at ANZ Bank argued while analysts at Brown Brothers Harriman warned 'if those readings come in hot, it could be the trigger for the next leg higher in US yields and likely push the 10-year above 2% for the first time since August 2019.''

''Fed tightening expectations would also pick up and likely push the short end of the US curve higher, which would support the dollar.''