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US CPI meets forecast

Friday 13 January, 2023

Daily Currency Update

Thursday was another quiet day for domestic data in the UK. Monetary policy member Catherine Mann spoke about the UK economy and monetary policy at an event hosted by the University of Manchester. Mann offered soundbites of note saying we are not at risk of policy over-tightening just yet and we must do more on raising interest rates. These comments will have supported the Pound which lost ground against the EUR and USD in mid-December after votes between MPC members on future interest rates steered away from being unanimous on rises. It was data elsewhere that drove movement yesterday as US CPI fell to the forecast 6.5% and core CPI met the expected 5.7%. The U.S. inflation data shows that the Fed's aggressive rate increases are having the desired impact. This suggests that the U.S. central bank could slow its rate hikes further in early February. GBP/USD jumped to 1.2244 after the release. GBP/EUR lost further ground yesterday and touched 1.1240 overnight. Earlier this morning, U.K. gross domestic product rose 0.1% the month in November, a better result than expected, but industrial production fell 0.2% and manufacturing production slumped 0.5%. The GDP news has maintained Sterling’s gains against the US Dollar and the currency pair opened at 1.2230. GBP/EUR has recovered and sits just under 1.1300 from the fresh lows seen overnight.

Key Movers

US CPI data met the forecast yesterday, increasing the chances that the Fed will slow down its interest rate hike at the next meeting in February. Policymakers, prior to yesterday, had made it clear that the pace of its interest rate hikes will be driven by domestic data. As the CPI release yesterday has shown that the Fed is now getting a grip on inflation the chances of a 0.25% interest rate hike over a 0.50% hike at the next meeting is very likely. Both CPI and core CPI fell as expected. Jobs data was also released at the same time yesterday showing unemployment claims dropped from the previous figure and beat expectations. The USD lost ground against the EUR which jumped to 1.0860 on the news and GBP/USD has risen to 1.2240. US data will remain in focus in the build-up to the next Fed meeting, but if it remains positive the USD should lose ground further.

Expected Ranges

  • GBP/USD: 1.2110 - 1.2350 ▲
  • GBP/EUR: 1.1240 - 1.1330 ▼
  • GBP/AUD: 1.7440 - 1.7630 ▼
  • EUR/USD: 1.0760 - 1.0890 ▲