FX round-up: Sterling mixed as traders look ahead to Tuesday's UK CPI

Sterling turned in a mixed performance on key crosses Monday as investors assessed an upwardly revised UK economic growth forecast and looked ahead to Tuesday's consumer-price index (CPI).

At about 17:19 GMT, sterling was up 0.08% to $1.2501, and up 0.47% to €1.1793. The dollar-spot index was up 0.19% to $100.990.

Sterling also gained versus the currencies of Australia, New Zealand and Japan, but was lower against Canada's and South Africa's.

"Sterling seems to have its eyes firmly locked on tomorrow's UK (CPI) inflation reading, which analysts are expecting to near the Bank of England's (BoE) targeted 2%," said SpreadEx financial analyst Connor Campbell.

"The prospect of such an upward CPI swing, and the potential ramifications this has for a BoE rate hike, has helped the pound hold off the dollar while nabbing nearly half a percent in growth from the euro," Campbell said.

Michael Hewson, chief market analyst at CMC Markets UK, said a strong CPI number would legitimise the concerns expressed by BoE policymaker Kristin Forbes last week, about too hot inflation, and start to peel away the fragile consensus on the central bank's Monetary Policy Committee.

Earlier on Monday, the European Commission upped its estimate for UK gross domestic product growth to 1.5% in 2017, from a forecast of 1.0% previously and versus 2% in 2016. This after BoE upped its outlook earlier in February.

"The impact of the vote by the UK to leave the EU in the referendum held on 23 June 2016 on growth has yet to be felt," the commission said in its report, saying it expected recent momentum to "ease notably" after the first quarter.

Meantime, the dollar turned in mostly positive performance across key pairs Monday, gaining traction on the euro, aussie, kiwi and yen, but faltering on the loonie and rand.

"The US dollar has stayed firm on the back of this more optimistic tone, and ahead of testimony tomorrow from US Federal Reserve chair Janet Yellen," said Hewson.

Yellen was expected to give an upbeat assessment of the dollar economy to US lawmakers.

FXTM Research analyst Lukman Otunuga added the US currency had staged a sharp rebound last week after US President Donald Trump promised a phenomenal tax plan, seen as dollar supportive.

"It is becoming increasingly clear that the dollar's value has been dictated by Trump this quarter with optimism over fiscal stimulus, infrastructure spending and tax cuts fuelling the bull rally," said Otunuga in a statement.

Expectations of a rise in US rates had also played a part in supporting the greenback with prices likely to remain buoyed in the medium to longer term.

This despite James Bullard, the St. Louis Fed president, last week reiterating his prediction that the federal-funds target rate would stay below 1% through 2019.

"We think the low-safe-real-rate regime is unlikely to change in the near term. This means the policy rate can also remain relatively low over the forecast horizon," Bullard said on 9 February.

Nonetheless, in his speech at Olin Business School Bullard he also indicated that the new US administration's stated aim to deliver fiscal policy easing might change that forecast if it led to higher productivity.