The British pound was a little higher in early London session, originally shrugging off post-Brexit trade issues over Northern Ireland. However, we have seen the US dollar creep a touch higher since traders looked to upcoming US inflation data and a European Central Bank (ECB) meeting on Thursday.
With the US inflation report in focus, investors ate increasingly anxious about whether the interest rate rises could end a 15-month dollar downtrend.
In The Meantime, Britain’s Brexit minister, David Frost, is meeting European Commission Vice President Maros Sefcovic in London to try to settle the differences over trading arrangements in Northern Ireland.
The row has been dubbed the “sausage war” by British media because it affects the movement of chilled meats from Britain to Northern Ireland.
Meanwhile, US President Joe Biden is on his way to participate in the G7 summit and has decided to have a meeting with British Prime Minister Boris Johnson on Thursday. The POTUS has warned the UK that their trading relationship is at risk if Britain does not toe the line with the Ireland agreement.
“If the relationship between the EU and the UK over this does worsen, it could be a significant headwind for sterling… but I think the market would rather ignore it,” said Jane Foley, senior FX strategist at Rabobank.
Overall, currency markets have been treading water ahead of CPI and the ECB meeting, both on Super Thursday, which are expected to be market moving.
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