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Hawkish ECB, UK Inflation Surprises, Propel The Pound and Euro

Hawkish ECB, UK Inflation Surprises, Boost The Pound and Euro

The Euro is making a recovery against the US Dollar, heading towards the 1.0900 mark on Wednesday morning. The recovery is due to the Dollar taking a breather amid a risk-off mood and the hawkish stance of the European Central Bank (ECB). The next focal point in the market is the US Retail Sales data.

EURUSD DAILY CHART

Pound Sterling Bounces Back Post UK Inflation Data

The Pound Sterling (GBP) is experiencing a rebound, moving above the 1.2650 mark. This surge comes on the heels of an unexpected rise in the headline UK annual Consumer Price Index (CPI) inflation data. This hot off the press inflation data has squashed hopes of aggressive interest rate cuts by the Bank of England (BoE) this year, thus giving the Pound Sterling a lift.

GBPUSD DAILY CHART

GBPUSD DAILY CHART

GBP/JPY Crosses the 187.00 Mark Following Strong UK Economic Data

The GBP/JPY pair continues its upward journey for the third consecutive day, trading around 187.10 during the European session on Wednesday. This momentum is driven by solid economic data from the UK released on Wednesday, which supports the GBP/JPY cross.

GBP/JPY Daily Chart

GBP/JPY Daily Chart

The chances of an early rate cut by the BoE have lessened due to increased price pressures, possibly leading the central bank to adopt a more cautious approach to manage inflation and maintain price stability.

UK Inflation Data Surpasses Expectations

UK’s year-over-year CPI rose by 4.0%, surpassing the previous 3.9% and the expected 3.8% reading in December. The monthly CPI also increased by 0.4%, compared to the expected 0.2%, reversing from the previous decline of 0.2%. Meanwhile, the annual Core CPI remained consistent at 5.1%, against the market expectation of 4.9%.

Japanese Yen Continues to Decline Against the British Pound

The Japanese Yen (JPY) continues to lose ground against the British Pound (GBP) due to falling consumer prices in Tokyo and weak labor data released last week. This has reinforced expectations that the Bank of Japan (BoJ) will delay its plan to shift away from its extremely accommodative monetary policy stance.

Gold Price Maintains Selling Pressure, Defends 50-day SMA Support

The price of gold (XAU/USD) continues to face selling pressure for the second consecutive day, maintaining its offered tone through the early part of the European session on Wednesday. However, the precious metal defends the 50-day Simple Moving Average (SMA) support and currently trades around the $2,024-2,025 area, just above the weekly low reached in the last hour.

XAUUSD Daily Chart

XAUUSD Daily Chart

The overnight remarks by Federal Reserve’s Christopher Waller have led investors to further trim their bets for an early rate cut by the US central bank. This supports the elevated US Treasury bond yields, which lift the US Dollar to over a one-month peak and undermine the non-yielding yellow metal.

UK Consumer Price Inflation Overview: December 2023

In the world of economic indicators, consumer price inflation is a key gauge of price levels and economic health. In the UK, December 2023 brought some interesting shifts in these metrics.

IndicatorRate (%)Change from Previous Month
Consumer Prices Index (CPI)4.0Up from 3.9%
Consumer Prices Index including owner occupiers’ housing costs (CPIH)4.2No Change
Core CPIH (excluding energy, food, alcohol, and tobacco)5.2No Change
Core CPI (excluding energy, food, alcohol, and tobacco)5.1No Change
CPI Goods Annual Rate1.9Down from 2.0%
CPI Services Annual Rate6.4Up from 6.3%
CPIH Goods Annual Rate1.9Down from 2.0%
CPIH Services Annual Rate6.0No Change

The rise in the CPI to 4.0% marked the first increase since February 2023. On a monthly basis, both the CPI and CPIH rose by 0.4%, matching the rate of increase seen in December 2022.

The largest upward pressure on the monthly change in both CPIH and CPI annual rates came from alcohol and tobacco. Conversely, the most significant downward pressure came from food and non-alcoholic beverages.

As for the core indices, which exclude more volatile components like energy, food, alcohol, and tobacco, the annual rates remained steady in December 2023 at 5.2% for CPIH and 5.1% for CPI. The CPIH goods annual rate slowed slightly, while the CPI services annual rate saw a slight uptick.

The overall picture painted by these statistics is one of stable inflation with some sectors experiencing more price pressure than others source.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.