Pound Sterling gains on soft UK inflation, mix US CPI data
- The Pound Sterling rebounds after a softer-than-expected UK CPI report for December.
- Soft UK inflation data would prompt traders to price in a higher number of BoE interest rate cuts for the year.
- The US Dollar corrects vertically as the US core CPI surprisingly decelerated in December.
The Pound Sterling (GBP) surges to near 1.2300 against the US Dollar (USD) in Wednesday’s North American session after the release of the United States (US) Consumer Price Index (CPI) report for December, which showed mixed numbers. The GBP/USD pair tumbled as the USD dives after the inflation data, with the US Dollar Index (DXY) sliding to near 108.70.
The CPI report showed that the core CPI – which excludes volatile items such as food and energy – rose at a slower pace of 3.2% than estimates and November's reading of 3.3%. Month-on-month core inflation grew by 0.2%, as expected, slower than the former release of 0.3%. The annual headline CPI accelerated to 2.9%, as expected, from 2.7% in November. Monthly headline CPI rose by 0.4%, faster than estimates and the former release of 0.3%.
Soft US core inflation data is unlikely to accelerate market expectations that the Federal Reserve (Fed) would cut interest rates more than once this year. Market participants expect that the inflation outlook will remain stubborn, as policies such as immigration controls, higher tariffs, and lower taxes under Trump’s administration will boost the economic outlook by fuelling demand for domestically produced goods and services.
The USD index was already lower from its more-than-two-year high of 110.15 after the release of US Producer Price Index (PPI) data for December on Tuesday, which showed a slower-than-expected growth in producer inflation.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.26% | -0.57% | -0.91% | -0.28% | -0.67% | -0.61% | -0.31% | |
| EUR | 0.26% | -0.31% | -0.65% | -0.03% | -0.40% | -0.34% | -0.03% | |
| GBP | 0.57% | 0.31% | -0.35% | 0.30% | -0.08% | -0.04% | 0.27% | |
| JPY | 0.91% | 0.65% | 0.35% | 0.66% | 0.27% | 0.32% | 0.64% | |
| CAD | 0.28% | 0.03% | -0.30% | -0.66% | -0.39% | -0.33% | -0.02% | |
| AUD | 0.67% | 0.40% | 0.08% | -0.27% | 0.39% | 0.05% | 0.33% | |
| NZD | 0.61% | 0.34% | 0.04% | -0.32% | 0.33% | -0.05% | 0.31% | |
| CHF | 0.31% | 0.03% | -0.27% | -0.64% | 0.02% | -0.33% | -0.31% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: Pound Sterling rebounds as gilt yields tumble after soft UK inflation data
- The Pound Sterling recovers sharply on Wednesday after the release of the United Kingdom (UK) CPI report for December, which revealed that inflationary pressures grew moderately. The CPI report showed that annual headline inflation surprisingly rose at a slower pace of 2.5% compared to 2.6% in November. Economists expected the inflation data to have accelerated to 2.7%. On a monthly basis, headline inflation rose by 0.3%, faster than the 0.1% growth in November but slower than estimates of 0.4%. The core CPI grew by 3.2% year-over-year, slower than estimates of 3.4% and the former reading of 3.5%.
- Services inflation, a closely watched indicator by Bank of England (BoE) officials, decelerated to 4.4% from 5% in November. This sharp slowdown would force the BoE to cut interest rates faster this year than in 2024. Technically, the layout is unfavorable for the Pound Sterling but the currency might rebound as it is likely to bring a pause to surging UK gilt yields. 30-year UK gilt yields tumble to near 5.38% from a more-than-26-year high of 5.47%.
- Earlier, the British currency was underperforming as rising yields on UK gilts jeopardized Chancellor of the Exchequer Rachel Reeves’ decision not to fund day-to-day spending through foreign borrowings. UK yields surged as market participants turned cautious over the UK economic outlook on the back of a likely trade war with the US. President-elect Donald Trump is expected to raise import tariffs heavily, a scenario that will falter the UK’s export sector, being one of the leading trading partners of the US. Slowing price pressures would pave the way for the BoE to cut interest rates in the policy meeting in February, a scenario that will result in an acceleration in business activity that will improve the UK economic outlook.
Technical Analysis: Pound Sterling rises above 1.2200
The Pound Sterling trades above the key level of 1.2200 against the US Dollar on Wednesday. The outlook for the Cable remains weak as the vertically declining 20-day Exponential Moving Average (EMA) near 1.2405 suggests that the near-term trend is extremely bearish.
The 14-day Relative Strength Index (RSI) rebounds slightly after diving below 30.00 as the momentum oscillator turned oversold. However, the broader scenario remains bearish until it recovers inside the 20.00-40.00 range.
Looking down, the pair is expected to find support near the October 2023 low near 1.2050. On the upside, the 20-day EMA will act as key resistance.
Economic Indicator
Consumer Price Index ex Food & Energy (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Last release: Wed Jan 15, 2025 13:30
Frequency: Monthly
Actual: 3.2%
Consensus: 3.3%
Previous: 3.3%
Source: US Bureau of Labor Statistics
The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
