Sterling bulls can breathe a sigh of relief after soothing CPI reports from the UK and U.S. CPI diminished pressure on the pound emanating from the bond market, but they won't be able to rest for long.

While the data pulled the pound further away from its recent low at 1.21 to highs near 1.23, UK Nov GDP due on Thursday could revive the fiscal uncertainties recently besetting sterling.

The UK's large current account deficit leaves the UK economy and budget at the mercy of foreign funding -- and the pound in a precarious position -- following the recent run-up in global yields led by U.S. Treasuries.

For now, the inflation reports have left UK gilt yields down 14bp at the front of the curve and 12bp in the long end, outstripping the move U.S. Treasuries, relieving immediate UK funding concerns and, thus, stabilizing the pound.

Technically, a close above the 10-DMA at 1.2338 could lead to tests of other short-term DMAs on the way to the 2025 high near 1.26. Conversely, a GDP miss lower may open the way for a retest of support at 1.21 and perhaps late-2023 lows just above 1.20.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)