Bailey Backtrack Sends Sterling Soaring

GBP traded very heavy throughout the morning, with GBP/USD bottoming out at 1.2713 as concerns over new COVID restrictions in the UK and political uncertainty over the Internal Market Bill weighed. This was swiftly reversed, however, as the BoE governor Bailey dashed speculation that the BoE's technical review into negative rates meant imminent cuts to the Bank rate. The BoE governor stated that the technical work will take time, and is not an indication that the Bank will move rates into negative territory.

This prompted a 100 pip turnaround in GBP/USD, which rallied swiftly back above 1.28. This leaves GBP as one of the better performing currencies in G10.

The CNY traded particularly well, despite signs that the Chinese authorities are beginning to move against CNY strength. The PBOC reference rate was set weaker and at the largest gap vs. expectations for months. This could begin to raise speculation that the bank will move against further CNY strength in the coming months.

The data calendar is quiet Tuesday, with no major released scheduled. However, there's plenty of political risk and central bank speak on the slate to keep markets busy. Fed's Powell will be the main event as he appears alongside Tsy Secretary Mnuchin in front of the House Financial Services panel. ECB's Lane & Panetta and Fed's Evans, Barkin & Bostic are also due to speak.