GBP/USD bulls take the lead at the start of the week

• GBP/USD catches an opening bid in Asia digging into the 1.3570's. 
• A busy week of both US events and UK data is ahead for cable.
• Growing tensions over Ukraine and the possibility of a Russian invasion is the main geopolitical driver. 

Risk remains At 1.3566, GBP/USD is 0.14% higher in the open this week as markets find solace in the absence of any weekend escalation with regards to Russia and the US warning that an invasion of Ukraine could begin any day. The announcements roiled markets on Friday and GBP/USD fell almost 70 pips to a low of 1.3545. 

Meanwhile, Russia has more than 100,000 troops massed near Ukraine and the US has repeatedly said an invasion is imminent. However, Moscow denies any such plans and has accused the West of “hysteria” and markets are of the mind that diplomacy will prevail, at least for the start of the week, helping risk to recover early doors.  

Meanwhile, the pound's strength against the dollar of late has been down to the expectations of the Bank of England. There are as many as another 150 bps in increases are priced in for the remainder of the year by the Old Lady compared to nearly 170 bps by the US Federal Reserve. According to a Reuters poll, the BoE is to raise rates again in March, with inflation peaking soon after. However, there are economic headwinds that could weigh on the pound down to surging inflation. 

''Uncertainty around the January Consumer Price Index release is high, in part because of the CPI basket re-weighting, but also due to significant surprises in other countries' January CPI prints,'' analysts at TD Securities explained. ''In the UK, fuel prices likely fell slightly while food prices continued to accelerate, leaving inflation little changed from Dec. But look for inflation to rise from here, peaking above 7% in April.'' The data will be out on Wednesday 16 February.

In other events for the week, the Federal Open Market Committee meeting minutes will be released and traders will be on the lookout for discussions regarding near-term policy plans. The analysts at TDS explained market ill be paying particular attention to plans for balance sheet normalization steps, following the release of the normalization "principles" in Jan. ''The minutes might seem stale, however, given the recent strength in macro data,'' the analysts added. The focus will then turn to US Retail Sales where an improvement on December's sharp decline could be supportive to the US dollar. 

Domestically, the UK's labour force will be put under the spotlight as well this week in the labour market report. ''The MPC will be closely watching labour market tightness. We expect the unemployment rate to remain unchanged, with some softening in wage growth (driven by base effects, not short-term dynamics)m; the analysts at TDS said. ''Flash Jan PAYE data will provide further insights on Omicron-period hiring; firms hired at their fastest pace on record in Dec.''