Sterling rose in European trade on Tuesday against a basket of major rivals, extending gains for the second day against the dollar and hitting a one-week high amid positive outlook.

Markets expect Bank of England to maintain interest rates high for most of 2024 following the surprise increase in UK inflation in December, 

Many analysts now expect BOE to hold onto tight policies for longer than the Federal Reserve or the ECB, in turn boosting the pound.

GBP/USD

GBP/USD rose 0.3% to 1.2747. the highest in a week, with a session-low at 1.2705, after rising 0.1% on Monday, resuming gains following disappointing UK retail sales data. 

Positive Sentiment 

Markets are dominated by positive sentiment with Wall Street hitting fresh record highers as investors await the first Fed rate cuts this year.

The pound is gaining ground against both the euro and the dollar, shaking off recent weakness following weak retail sales data on Friday.

BOE

Markets used to expect an early rate cut by the Bank of England in March, but a string of strong data, especially consumer prices, hurt such odds.S

Several banks now project a later BOE rate cut than expected, especially compared to the Fed and ECB, underscoring the pound against main rivals. 

US stock indices gained ground today as markets focus on corporate results.

The current focus on corporate quarterly earnings and inflation-related data comes as investors assess the likely timing of upcoming interest rate cuts. 

Markets now hold a 46% chance for a Fed interest rate cut in March, down sharply from 81% in the previous week. 

Dow Jones rose 0.4%, or 140 points as of 17:05 GMT to 38,004, while S&P 500 rose 0.3%, or 13 points to 4,855, as NASDAQ rose 0.4%, or 55 points to 15,366. 

Copper prices fell on Monday as markets focus on weak demand outlook, especially in China, the world's largest metals consumer, while a drawdown of the London Metals Exchange's inventories helped curb the losses.

Copper futures at the London Metals Exchange fell 0.2% to $8338, with traders citing thin trading amid the lunar new year holiday in China. 

China's troubled real estate sector continues to weigh down on copper prices and other industrial metals as manufacturing also slows down worldwide. 

However, a weaker dollar against major rivals makes greenback-denominated copper futures cheaper to holders of other currencies, underpinning porices.

Copper inventories at the London Metals Exchange fell 18% to 156.750 tonnes since mid October, which also provided some support to prices. 

Technically, the first resistance facing copper lies at $8370, then $8450, so that it's between the SMA averages of 200 and 50 days, with the support laying at $8290, which is the 100-day SMA average. 

At the London Metals Exchange, aluminium fell to $2156 a tonne, the lowest since December 14, while zinc shed 0.6% to $2447, as lead fell 0.4% to $2098, while tin rose 0.1% to $25330, as nickel shed 0.5% to $15950. 

Otherwise, the dollar stabilized negatively at 103.2 as of 16:46 GMT, with a session-high at 103.3, and a low at 103.1. 

Copper March futures fell 0.5% in American trade as of 16:40 GMT to $3.76 a pound. 

Dollar fell in European trade on Monday against a basket of major rivals, extending losses for the second straight day and backing off five-week highs on profit-taking.

US 10-year treasury yields also slowed down ahead of more data and clues on the future path of Fed interest rates.

The Index

The dollar index fell 0.15% to 103.11, with a session-high at 103.33, after closing down 0.15% on Friday, the first loss in six days on profit-taking off a five-month high at 103.69. 

The index rose 0.7% last week, the third weekly profit in a row after strong data and bullish remarks by Fed officials hurt the odds of an early Fed rate cut in March. 

San Francisco Fed President Mary Dale said the US economy and monetary policies are in a good position, and it's too early to talk about rate cuts.

Atlanta Fed President Raphael Bostic said he doesn't expect a rate cut before the third quarter.

Chicago Fed President Austan Goolsbey said that any changes in policies will fully depend on data showing a clear path to 2% inflation.

US Rates

Markets are currently pricing in a 46% chance of a US interest rate cut at the March Fed meeting, with the odds for such a cut in May falling to 85%. 

Now investors await a basket of important data later today on US GDP growth, unemployment claims, and personal spending to gather more clues on the likely path ahead for monetary policies.