Sterling has rallied off its European session low at 1.3851, moving back near flat on the day by 1.3865.
Monday's early GBP/USD slide, from Asia highs above 1.39, was predicated on enhanced expectations of early US asset taper in the wake of Friday's NFP and related data beats nL1N2PC32T.
Despite building U.S. taper tones, dollar bulls appear reluctant to push the greenback higher amid reduced summer liquidity, and with the exception of the ECB, a general feeling that most central banks are poised to begin reducing pandemic-related accommodation in the near-term.
For Sterling traders, the shallow dip from GBP/USD's June 1st 2021-high at 1.4250, and EUR/GBP's slide from September 2020 highs by 0.9230 to current levels below 0.85, hint at a nascent GBP bid, which could, ultimately, take GBP/USD to new 2021 highs.
And although it’s not the Fed's preferred inflation metric, GBP/USD traders will be paying close attention to Wednesday's U.S. CPI data.
A rise in core CPI may further enhance expectations for early Fed APP taper.
UK GDP and output data on Thursday will also be closely watched.
Both data sets will have market-moving potential, but the risks seem skewed to the upside for GBP/USD, should the Fed remain steady, and the BoE, as indicated by short-sterling futures 0#FSS:, gets a head-start on rate hikes relative to the Fed.
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