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Sterling remains buoyant

The pound maintained a positive trajectory on Tuesday after Boris Johnson ruled out any further tightening of Covid restrictions in England.

Sterling remains buoyed so far this morning, with GBP/EUR flat at €1.1984 and GBP/USD stable at $1.3547. GBP/CAD has ticked up to C$1.7227, while GBP/AUD and GBP/NZD have appreciated to AU$1.8725 and NZ$1.9931, respectively.

Looking ahead, will some hawkish minutes from the Federal Reserve’s December policy meeting help to buoy the US dollar today?

What’s been happening?

The pound strengthened through yesterday’s session, with the GBP/EUR exchange rate even rallying to a new 22-month high.

This upswing in Sterling came as the UK government confirmed it is not planning to impose any new Covid restrictions in England, with Boris Johnson insisting England can ‘ride out’ a record increase in infections ‘without shutting down our country once again’.

The euro, meanwhile, drifted lower on Tuesday as its strong negative correlation with the US dollar left it vulnerable as the latter strengthened, offsetting the impact of some positive German retail sales figures.

This strengthening of the US dollar was primarily driven by rising US Treasury yields, but was tempered after December’s ISM manufacturing PMI printed below expectations.

What’s coming up?

Turning to today’s session a key focus will no doubt be on the publication of the minutes from the Federal Reserve’s December policy meeting.

USD investors will likely scrutinise the minutes as they look for any hints that Fed policymakers may be open to a March interest rate hike, with the US dollar likely to strengthen if they strike a hawkish tone.

Also influencing USD exchange rates may be the latest ADP employment figures. Will a drop in employment growth last month dent expectations for Friday’s more influential payroll release?

In the meantime, the release of the Eurozone’s latest services PMI could put some pressure on the euro this morning if it confirms growth in the bloc’s service sector slowed at the end of 2021.

In the absence of any notable GBP data releases, the direction of the pound may be driven by domestic Covid headlines. Any signs that the recent surge in infections may have peaked could buoy Sterling sentiment.

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