• This week, the driving force behind majors is the central bank divergences.

GBP/USD is still flat and waiting patiently for today's key event in US Consumer Price Index.

Initial gains were due to a soft dollar at week's beginning and dovish pivots by the European Central Bank in central bank sentiment. The pound was slightly lower against a single currency that is firmer, despite deep uncertainty regarding the future direction of the Bank of England's Monetary Policy.

Huw Pill, Chief Economist at Bank of England, was reportedly on the phone on Wednesday to explain that it was'reasonable' for central banks not to provide detailed guidance on the policy outlook because prospects for the economy were unclear'' according Reuters.

The money markets have already priced in the expected 25 bps rate rise by the BoE this month and 125 bps by 2022. The pound may be able to withstand a correction in currency more than the euro due to central bank divergences.

US CPI in Focus

If markets react to any new hawkish signals about the Federal Reserve's monetary tightening, the CPI print could support a weaker US dollar today. Higher than expected numbers would indicate more aggressive interest rates hikes, and could be expected to boost the greenback's value across the board. According to economists polled at Reuters, the readout will show a 0.5% month over-month increase in January and 7.3% for 2017.

On Wednesday, Loretta Mester, President of the Cleveland Fed, spoke. She argued that future interest rate increases after March depend on how strong inflation is and how long it persists. Raphael Bostic, Atlanta Fed President, stated that he still believes in a slightly faster pace for interest rate increases this fiscal year.

The US CPI data tonight will be important as it will settle the dispute over whether the Fed will raise the rate of interest with either a 25bp increase or a 50bp rise. Analysts at ANZ Bank argued that the USD would not benefit from the CPI data. Brown Brothers Harriman analysts warned that if the readings are hot, it could trigger the next leg in US yields, which will likely push the 10-year to 2% for first time since August 2019.

"Fed tightening expectations would also pick-up and likely push short end of US curve higher which would support dollar."