The drop in GBP/USD from its Jan. 7 high at 1.2575 can be attributed to several factors, including concerns about UK fiscal sustainability which have fomented a sell-off in gilts and the pound which show no signs of letting up ahead of upcoming UK and U.S. inflation data.

Gilt yields have galloped higher on concerns about UK finances and fiscal sustainability, raising the heat on UK finance minister Rachel Reeves.

Adding to the woes of sterling bulls are expectations of persistent inflation in the U.S. influenced by a wave of new tariffs expected from Donald Trump's incoming regime.

Markets will get a look at December U.S. and UK inflation data on Wednesday.

Reuters is forecasting U.S. core CPI steady at 3.3% y/y and headline inflation at 2.9% versus 2.7% in November. UK CPI is forecast steady at 2.6%.

Scope for rising UK consumer prices, higher financing costs and diminishing confidence in the government's ability to manage its finances might keep GBP/USD on a path to test its early October 2023 low by 1.20. For more click on

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GBP Chart:

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

((paul.spirgel@thomsonreuters.com))