GBP/USD advances higher toward 1.3100 on upbeat CBI data

• Optimism in UK manufacturing sector rose to its highest level since April 2014.
• US Dollar Index continues to fluctuate above 97.50.
• Coming up: Chicago Fed's National Activity Index and Existing Home sales data from US.

The British pound gathered strength against its major rivals on Wednesday after the data published by the Confederation of British Industry (CBI) revealed that the manufacturing sector is starting the new year on a strong footing. The GBP/USD pair, which jumped to a fresh daily high of 1.3094 in the last hour, was last seen trading at 1.3090, adding 0.32% on a daily basis.

Signs of life in UK manufacturing activity

The CBI's headline Manufacturing Order Book Balance rose to its best level since August at -22 in January from -28 in December. More importantly, the Quarterly Business Situation Index, the gauge of optimism in the manufacturing sector, recorded its best reading since April of 2014 at +23.

Reflecting the broad-based GDP strength, the EUR/GBP pair is down 0.3% on the day at 0.8465.

Commenting on the data, "the boost to optimism in the manufacturing sector is very encouraging given the difficult environment that firms have faced in recent months," said Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council. "However, it is clear that the sector is not yet out of the woods in terms of performance."

On the other hand, the US Dollar Index is fluctuating above the 97.50 mark for the third straight day on Wednesday amid a lack of significant macroeconomic drivers. In the second half of the day, the Federal Reserve Bank of Chicago's National Activity Index and Existing Home Sales data from the US will be looked upon for fresh impetus. However, these data are unlikely to trigger a noticeable market reaction and Friday's Manufacturing and Services PMI data could ramp up the volatility.

Technical levels to watch for