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UK inflation puts pressure on the Pound

Daily Currency Update

Consumers and policymakers at the Bank of England are breathing a sigh of relief after inflation numbers showed some sharp falls in the rate of price increases in January. It appears the recent bout of monetary tightening is working, as UK CPI posted a reading of 10.1% which was less than the forecasted figure. Sterling was immediately on the back foot, with GBPUSD dropping below 1.20 in yesterday afternoon's session, as the market speculates how much further the Bank of England needs to intervene in terms of rate hikes. Strategists at Citibank were recommending clients this week to buy Euro against the Pound as they target a move below 1.10 in the GBPEUR, which if materialises, would be the lowest the rate has been in 3 years. Data is light for the UK today, with MPC Member Pill speaking at midday being the only notable market mover.


Key Movers

The US Dollar climbed to a six-week high on Wednesday after the higher-than-expected US Retail Sales data that followed high CPI data from Tuesday. US Retail Sales rose by 3% m/m in January, far surpassing the consensus among economists, who had looked for a 1.9% increase. The 2.3% increase in core sales excluded spending on cars and suggests robust demand for smaller value items including food and drink, spending on which was up 25.2% compared with January 2022 sales. Rising prices of clothing, transportation, and housing services all helped to keep inflation from falling as far as expected, with softer energy prices unable to offset 'core' or 'underlying' domestic inflation pressure. GBPUSD reversed a week's worth of gains in mid-week trade after the release surprised strongly on the upside of expectations for January.

Today sees the release of the US PPI, which will give further hints as to the current US inflation picture and may drive the US Dollar further higher if the rhetoric that the US Fed has more room for further rate hikes over other central banks is continued.

Expected Ranges

  • GBP/USD: 1.1980 - 1.2065 ▼
  • GBP/EUR: 1.1175 - 1.1270 ▼
  • GBP/AUD: 1.7360 - 1.7510 ▼
  • EUR/USD: 1.0665 - 1.0745 ▲