GBP/USD plunged due to the market anticipation ahead of the FOMC meeting, the Russian-Ukrainian conflict, and the unsatisfactory release of UK PMI data. 

In the trading session late Monday, the GBP/USD slumped by 0.74% to $1,345. The pound was eroded by a strengthening U.S. dollar supported by market expectations.

That was for the timing of the Fed's rate hike at this week's meeting. However, based on CFTC data, the speculators reduced their net short positions on the Pound in the week to January 18.

Thus, making the overall speculative position on Sterling near neutral and the most bullish since October last year. Besides that, some other moments were also happened. 

The Political Feud also takes a Role

Meanwhile, the political feud between the Western bloc and the Eastern bloc also affected the performance of the financial markets. Stocks weakened as investors preferred to seek safe havens.

The united states asked the ambassadors and their families in Ukraine to leave the country immediately. Shortly thereafter, the British gave the same order to the staff of their embassy in Ukraine.

America and its allies suspect Russia will soon invade Ukraine in a major way. However, the statement was denied by the Ukrainian Foreign Minister. 

He said that the policy of returning the ambassador from Ukraine was premature. The political security situation in that country  remains stable and there will be no radical changes. 

However, still, this situation makes the geopolitical uncertainty increase so that high-risk currencies such as the Pound tend to be abandoned by the investors.

The UK PMI Data is Less Solid

Elsewhere, the UK PMI data released this afternoon even added to sterling's burden. The UK Manufacturing PMI fell from 57.9 to 56.9 in January, lower than expectations of 57.7. 

For your information, The Services PMI in that country fell from 53.6 to 53.3 in January. That position was lower than the expectations of 53.9 made by several parties. 

The issue that is being discussed by the market is the internal political turmoil of The United Kingdom related to the scandal of PM Boris Johnson. However, this is not considered to have caused the weakening of the pound. 

The Monex analyst, Simon Harvey, said that the strengthening dollar and worsening uk PMI were more appropriately cited as the strongest catalysts for the pound's bearishness tonight.

Meanwhile, Australia’s Inflation Rebound

The MUFG analyst Lee Hardman said that they do not expect the materially increased political uncertainty to impact the pound's performance, given there is unlikely to be a short-term change in government policy.

In the other side, On Tuesday, the Australian Bureau of Statistics released their consumer inflation data. It was recovered from 3.0% to 3.5% on an annualized basis in the fourth quarter of 2021. 

This figure exceeded the expectations of a 3.2% increase. On a quarter-over-quarter basis, the Australian inflation also strengthened from 0.8% to 1.3%. 

This figure successfully outperformed the expectations of an increase pegged at the level of 1.0 percent. It was a good sign for some people. 

The Triggers of Australia’s CPI Data

Australia's significantly improved CPI data was triggered by therising fuel prices globally. In addition, soaring housing prices also boosted theseprice pressures. 

The Analysts see that the Australia's CPI surge as a surprise to the Australian central bank (RBA). RBA policymakers say inflation won't hit 2.5% until the end of 2023.

That is why;  there's no reason for them to raise rates this year. With the release of consumer inflation data that turned out to rise beyond projections, market attention is now on the RBA's next meeting.

The aim is to find out the reaction of policymakers at the central bank in responding to a surge in inflation that exceeds their outlook.