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New UK inflation rate data revealed an unexpected fall to 2.5%, creating some relief for Chancellor Rachel Reeves and clearing the path for a Bank of England interest rate cut. Tuesday also saw the end to USD’s run of strong data and a euro that benefited from its competitors’ wobbles.
On Tuesday, following a tough week for the pound that saw GBP suffering six straight days of decline against the dollar, UK Chancellor Rachel Reeves faced down opposition complaints in the Commons and Daily Mail headlines calling her a ‘lame duck’. The chancellor stood by the fiscal rules she set out in the autumn budget, and the price of 10-year bonds fell slightly. Reeves gains some relief from this morning’s inflation data, which paves the way for a possible quarter-point interest rate cut to 4.5% next month.
The dollar had a mixed Tuesday, losing ground against the euro. This was in part because of below-market-expectations PPI (Producer Price Index) numbers coming out of the US. After a string of major gains for the US economy ahead of President Trump’s inauguration next week, the soft numbers were the first “miss” for the US economy in a week. US Inflation data due out later today will reveal if the PPI numbers were the start of a trend or an aberration.
The euro took advantage of the dollars vulnerability and made gains on both USD and GBP. However, this afternoon will see Germany publish its full year GDP growth figures. The German economy is forecast to contract for the second year running. Competing with the inflation data out of the UK, the euro may have a challenging day.
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GBP: Surprise inflation data out of the UK
Sterling remains cowed against the blows it’s received over the past week, though it’s found relief with lower-than-expected inflation data. If today’s German GDP figures and US inflation data are below expectations it would offer the pound a chance to regain some lost ground.
GBP/USD past year
EUR: Euro makes gains
Buoyed by the continuing struggles of the UK government and weak PPI data out of the US, Tuesday was a good day for the euro, seeing it gain on both USD and GBP. However, Germany is expected to announce a further contraction to its GDP today, which could bring volatility to the euro.
EUR/USD past year
USD: Soft data stymies dollar’s rise
After a week of rampant growth for the dollar, soft PPI data saw it lose ground to the euro. Inflation data due to be published this afternoon will reveal if soft numbers were start of a trend or an aberration.
USD/GBP past year
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