Pound Sterling has had a bit of a reprieve this morning with December Inflation figures coming in surprisingly lower than initial forecasts had predicted. Inflation was expected to hit 2.6% but came in slightly under at 2.5%. Usually, a lower Inflation reading is seen as negative for The Pound because it would lead to an interest rate cut which is less attractive for investors, however with the current economic outlook in The UK not looking good, along with rising bond yields, a drop in inflation gives the UK economy some breathing space. This should now lead to an Interest Rate cut next month by the Bank of England with market probability now at 83%, having been down at 62% prior to this release.
UK Retail Sales for December are also due out this Friday, with markets expecting a surprise release and again a bit more a reprieve for Sterling with an uptick of over 2%. Whether this actually happens or not is a different question, as wit Inflation this morning coming in lower that would suggest the recent retail period hasn’t been great for businesses. Either way, any further pressure on The Pound will only put Rachel Reeves under more scrutiny to intervene with her own pledge of one budget per year.
Keeping with Inflation, we have US Inflation figures for December due out this afternoon with Core Prices expected to rise by 0.2%. A release that mirrors this or shows stronger growth in prices will only strengthen The US Dollar as it will provide them with more reason to keep their narrative of higher rates for longer. On top of this, economically The US is thriving even with higher prices and higher rates which is one of the reasons for the wave it is currently riding.
GBP/EUR 1.1840 GBP/USD 1.2208 GBP/AED 4.4855
GBP/AUD 1.9684 GBP/CHF 1.1132 GBP/CAD 1.7520
GBP/NZD 2.1746 EUR/USD 1.0299 GBP/ZAR 23.0333