- GBP/USD struggles to capitalize on this week’s modest bounce from a multi-year low.
- Stagflation fears and UK fiscal concerns undermine the GBP and weigh on the major.
- Subdued USD demand acts as a tailwind for the pair ahead of the UK/US CPI prints.
The GBP/USD pair attracts some sellers during the Asian session on Wednesday, albeit it lacks follow-through and remains well within the previous day's broader trading range. Spot prices currently trade around the 1.2200 mark, down 0.20% for the day, as investors now look forward to the release of the high-impact Consumer Price Index (CPI) data from the UK and the US before positioning for the next leg of a directional move.
The crucial CPI report would influence the Bank of England’s (BoE) and the Federal Reserve's (Fed) interest rates outlook, which, in turn, will play a key role in determining the next leg of a directional move for the GBP/USD pair. Heading into the key data risk, the risk of stagflation – a combination of high inflation and weak economic growth – and concerns over the UK’s fiscal situation undermine the British Pound (GBP).
Furthermore, the recent surge in UK borrowing costs contributes to denting sentiment surrounding the GBP and turns out to be a key factor weighing on the GBP/USD pair. The US Dollar (USD), on the other hand, languishes near the weekly low touched in reaction to the release of softer US producer prices on Tuesday and helps limit the downside for spot prices. That said, the Fed's hawkish shift acts as a tailwind for the Greenback.
In fact, market participants now seem convinced that the US central bank would pause its rate-cutting cycle later this month and the expectations were reaffirmed by the upbeat US Nonfarm Payrolls (NFP) report on Friday. This remains supportive of elevated US Treasury bond yields and favors the USD bulls, suggesting that any attempted recovery in the GBP/USD pair might be seen as a selling opportunity and remain capped.
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.Next release: Wed Jan 15, 2025 07:00
Frequency: Monthly
Consensus: 2.7%
Previous: 2.6%
Source: Office for National Statistics
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD trims gains toward 1.1000 as focus shifts to Fed Minutes Premium
EUR/USD heads toward 1.1000 in the European session on Wednesday, reversing the uptick to near 1.1100 , The US Dollar recover as traders resort to repositioning ahead of the Fed Minutes release. However, USD buyers stay cautious as the trade war escalation aggravates US economic concerns.
GBP/USD revisits 1.2800 as US Dollar finds footing
GBP/USD is trimming gains to retest 1.2800 in European trading on Wednesday. The pair faces headwinds as the US Dollar stages a modest comeback even as investors remain wary over the impact of the escalating global trade war on the US economic prospects. Tariff updates and Fed Minutes awaited.
Gold price builds on strong intraday gains; bulls retain control near $3,050 area amid risk-off mood
Gold price climbs back closer to the $3,050 area during the early European session on Thursday as worries that an all-out global trade war would push the world economy into recession continue to boost safe-haven demand.
XRP Price Forecast: XXRP ETF and Trump tariffs shaping XRP fundamental outlook
XRP struggles to stay afloat, with key support levels crumbling due to volatility from macroeconomic factors, including United States President Donald Trump's reciprocal tariffs kicking in on Wednesday.
Tariff rollercoaster continues as China slapped with 104% levies
The reaction in currencies has not been as predictable. The clear winners so far remain the safe-haven Japanese yen and Swiss franc, no surprises there, while the euro has also emerged as a quasi-safe-haven given its high liquid status.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.