Sterling Shines in Soggy Session

GBP traded well following a speech from BoE governor Bailey who highlighted the difficulties and uncertainties when it comes to negative interest rates. Bailey stated that while there "nothing to stop" the imposition of negative interest rates, there would be lots of issues including complicating the outlook for the banking sector. Markets read these comments as a firm indication that the MPC are still well away from seriously considering NIRP, resulting in markets pushing out rate cut expectations and boosting GBP in the process. GBP/USD showed above $1.36.

Elsewhere, price action was less directional. The USD resumed recent weakness despite an uptick in US yields and a modest steepening in the curve. Meanwhile, haven currencies weakened, keeping JPY & CHF on the backfoot while AUD, and commodity-tied FX advanced.

Focus Wednesday turns to Italian, Eurozone industrial production and the US CPI report for December. More central bank speak is due to cross, with ECB's Lagarde, Villeroy and Bullard, Brainard, Harker and Clarida of the Fed are all scheduled.