- UK inflation is seen easing to 10.6% YoY in December, away from a 41-year high.
- Another soft CPI data could prompt BoE toward ending its tightening cycle.
- GBP/USD could bear the brunt of dovish BoE expectations.
GBP/USD has paused its bullish momentum seen in the first full week of 2023, as markets gear up for a data-heavy week from the United Kingdom, with all eyes on the critical Consumer Price Index (CPI) due this Wednesday at 07:00 GMT. Will the Pound Sterling extend its correction against the United States Dollar (USD) on the UK inflation report?
Peak inflation and the Bank of England policy
Having slowed to its lowest level in more than a year in November, the December month UK Consumer Price Index (CPI) data is seen easing further to 10.6% YoY while inter-month, CPI is seen steady at 0.4%. The annualized core inflation rate is likely to accelerate to 6.6% vs. 6.3% booked in November.
Source: FXStreet
In November, the UK Consumer Price Index fell more sharply than expected to 10.7% from October's 41-year peak of 11.1%, motivating the Bank of England (BoE) to hike the key policy rate by 50 basis points (bps) to 3.50%.
However, the Pound Sterling faced a bleak fate due to the divided voting composition. The vote was 6-3 in favor of the rate hike decision. Two Monetary Policy Committee (MPC) members, Silvana Tenreyro and Swati Dhingra, voted to hold rates at 3.0% while Catherine Mann voted to increase it by 75 bps to 3.75%.
The Bank of England doves could extend their control in the upcoming policy meeting on February 2, as economists are expecting the Consumer Price Index to keep moving away from the peak yet again.
The fall in the headline Consumer Price Index data could be partly driven by cratering energy prices, offering some comfort to households in the United Kingdom. The potential downtrend in UK inflation could fan expectations that the Bank of England may hint at an end to its tightening cycle as soon as at the start of next month.
Trading GBP/USD with UK Consumer Price Index
A softer-than-expected headline print could bolster expectations of a slowdown in the Bank of England’s rate hike pace or even an end to its tightening cycle, sending GBP/USD sharply lower.
With the United Kingdom Core Consumer Price Index - excluding energy and food prices, however, seen accelerating in December, it could cushion the impact of a softer headline figure on the British Pound.
In the case where the Consumer Price Index unexpectedly rises and outpaces the previous reading, GBP/USD could see a fresh upswing but the reaction will likely remain short-lived, as it could imply a tough road ahead for the Bank of England even though the country’s Gross Domestic Product (GDP) surprised with a 0.1% expansion in November.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD continues soft as markets digest employment data
The AUD/USD declined by 0.34% to 0.6470 in Thursday's session, extending its decline to a fresh three-month low of 0.6460. The US Dollar is easing after mixed data, while weak Australian employment data has reduced inflationary concerns, which might change the outlook of the Reserve Bank of Australia.
EUR/USD: Further declines remain well in store
EUR/USD briefly tested fresh year-long lows on Thursday, piercing the 1.0500 handle for the first time in 54 weeks. A lack of meaningful EU data is doing very little to provide support for the Euro, and Fiber bids continue to tilt in favor of the safe haven US Dollar.
Gold falls as Powell signals Fed's patience on lowering rates
Gold recovers some ground on Thursday yet remains trading below its opening price for the fifth consecutive day, undermined by the Greenback’s advance for its own fifth consecutive day. A slightly hot inflation report in the US and solid jobs data sponsored XAU/USD’s leg down toward the 100-day SMA.
Ethereum Price Forecast: ETH could rally to $4,522 despite mixed on-chain flows among investors
Ethereum is down over 1% on Thursday following record net inflows across ETH exchange-traded funds in the past six days. Despite the bullish market outlook, $300 million worth of unstaked ETH could hit the market and cause downward pressure on prices.
Trump vs CPI
US CPI for October was exactly in line with expectations. The headline rate of CPI rose to 2.6% YoY from 2.4% YoY in September. The core rate remained steady at 3.3%. The detail of the report shows that the shelter index rose by 0.4% on the month, which accounted for 50% of the increase in all items on a monthly basis.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.