GBP/USD drops to 1.2075 on downbeat UK inflation
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As the UK inflation data disappoints, GBP/USD takes offers to refresh the intraday low near 1.2100, adding strength to the first daily loss in three days.
Nonetheless, the UK Consumer Price Index fell 10.1% year on year in January, compared to 10.3% expected by the market and 10.5% previously. With this, headline inflation has fallen for the third consecutive month after reaching a 41-year high in October. More importantly, the Core CPI, which excludes volatile food and energy items, fell to 5.8% year on year, down from 6.2% expected and 6.3% in previous readings.
Given the mostly negative UK inflation figures, as well as the mixed jobs report from the previous day, the GBP/USD could fall further, as Bank of England (BoE) officials have recently highlighted the data dependency for further rate hikes.
Furthermore, a separate Reuters survey of economists predicted no more than one rate hike of 25 basis points (bps) in March before the BoE initiates policy pivot calls. Because Fed policymakers are comparatively more hawkish despite recent soft US inflation, the GBP/USD could face additional downside pressure.
Alternatively, the Financial Times (FT) reported that UK Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt are open to a deal with workers that includes a lump sum payment by backdating next year's pay award. This follows previous attempts by UK firms to raise labor pay in order to support inflation and put a floor under the GBP/USD price.
Despite an unimpressive US Consumer Price Index (CPI), hawkish Federal Reserve (Fed) comments and a recovery in US Treasury bond yields appear to be exerting downward pressure on the Cable pair.
Against this backdrop, US 10-year Treasury bond yields remain stable at around 3.75%, after rising three basis points (bps) the previous day to re-establish a six-week high, while the two-year counterpart follows suit by poking 4.62%, near 4.61% at the latest. However, the S&P 500 Futures fell half a percent, tracing Wall Street's losses and favoring the US Dollar's haven demand, allowing the US Dollar Index (DXY) to post its first daily gain in three days, up 0.27% intraday near 103.55 by press time.
Following the initial market reaction to key UK data, GBP/USD traders should await US Retail Sales and Industrial Production details for January, as well as the NY Empire State Manufacturing Index for February, for clear direction. However, a few central bankers from the Fed and the BoE are scheduled to speak, which may entertain Cable traders ahead of Friday's UK Retail Sales.
Nonetheless, the UK Consumer Price Index fell 10.1% year on year in January, compared to 10.3% expected by the market and 10.5% previously. With this, headline inflation has fallen for the third consecutive month after reaching a 41-year high in October. More importantly, the Core CPI, which excludes volatile food and energy items, fell to 5.8% year on year, down from 6.2% expected and 6.3% in previous readings.
Given the mostly negative UK inflation figures, as well as the mixed jobs report from the previous day, the GBP/USD could fall further, as Bank of England (BoE) officials have recently highlighted the data dependency for further rate hikes.
Furthermore, a separate Reuters survey of economists predicted no more than one rate hike of 25 basis points (bps) in March before the BoE initiates policy pivot calls. Because Fed policymakers are comparatively more hawkish despite recent soft US inflation, the GBP/USD could face additional downside pressure.
Alternatively, the Financial Times (FT) reported that UK Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt are open to a deal with workers that includes a lump sum payment by backdating next year's pay award. This follows previous attempts by UK firms to raise labor pay in order to support inflation and put a floor under the GBP/USD price.
Despite an unimpressive US Consumer Price Index (CPI), hawkish Federal Reserve (Fed) comments and a recovery in US Treasury bond yields appear to be exerting downward pressure on the Cable pair.
Against this backdrop, US 10-year Treasury bond yields remain stable at around 3.75%, after rising three basis points (bps) the previous day to re-establish a six-week high, while the two-year counterpart follows suit by poking 4.62%, near 4.61% at the latest. However, the S&P 500 Futures fell half a percent, tracing Wall Street's losses and favoring the US Dollar's haven demand, allowing the US Dollar Index (DXY) to post its first daily gain in three days, up 0.27% intraday near 103.55 by press time.
Following the initial market reaction to key UK data, GBP/USD traders should await US Retail Sales and Industrial Production details for January, as well as the NY Empire State Manufacturing Index for February, for clear direction. However, a few central bankers from the Fed and the BoE are scheduled to speak, which may entertain Cable traders ahead of Friday's UK Retail Sales.
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