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UK inflation held steady at 4% in January, defying projections of an increase to 4.2%
January’s headline inflation read in the UK was unchanged from December at 4%, sending the pound down by around 0.4% against the euro and by a third of a per cent against the US dollar. The euro enjoyed a much better time of things on Wednesday, gaining against the pound while regaining around 0.25% against the US dollar.
It’s always a strange one in currency markets when good news for an economy means bad news for its currency. That was the case yesterday, when the UK happily reported lower than expected inflation of 4% in January (unchanged from December) and the pound promptly slumped.
Forecasts had projected the headline figure to push up to 4.2% last month. In fact, month-on-month consumer price inflation (CPI) and core inflation both fell, which sent traders scrambling to the money markets — the financial world’s equivalent of the high street bookies — to bet on the Bank of England cutting interest rates before summer.
In a handy bit of serendipity, Bank of England governor Andrew Bailey happened to be appearing before a committee in parliament today, so we were able to get his take on things. Bailey called the latest figures “good news”, while tempering that giddy assessment with the following: “This week’s data does not really change our view from the February policy decision.” In other words, back off all ye who expect high rates to vanish instantly.
UK house prices fell for the seventh straight month, according to the Office for National Statistics. What’s good for buyers is bad for renters at the moment, and the data showed the price of private rentals increased by a record 6.2% in the 12 months to January.
Eurozone employment rose by 0.3% in the fourth quarter of 2023. That’s now the eleventh consecutive quarter of reduced joblessness in the eurozone, a pretty impressive feat considering all the roadblocks the last few years have thrown up.
It was a quiet day for US data but Wall Street stocks were up to begin Wednesday after some pretty deep losses on Tuesday. The S&P 500 and the tech-heavy Nasdaq were all up in the morning session, while treasury yields were down.
In other news, Prabowo Subianto has claimed victory in the Indonesian presidential elections. Subianto’s election was a controversial one in the world’s fourth most populous nation, with some commentators voicing concerns that he may have received too much support from his predecessor.
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GBP: Bailey holds firm
The pound fell back against its main rivals on Wednesday after January’s inflation figures undershot expectations.
Despite cooling inflation, Andrew Bailey is still playing hardball over interest rates. The Bank’s governor noted that progress had been made but observed that yesterday’s data had not done enough to sway him from his position of restraint.
GBP/USD: the past year
EUR: A foothold at last
The euro finally found something to grab on to on Wednesday, climbing by 0.4% against the pound and 0.25% against the US dollar.
This may have been the result of improved unemployment figures, but in reality speak more to an increased risk appetite across the Atlantic. The euro will take whatever it can get at the moment.
GBP/EUR: the past year
USD: Markets make hay
The US dollar had a mixed day, notching modest gains against the pound while finding itself fending off a belated euro fightback.
There wasn’t much in the way of macro data for the US to analyse, so thoughts instead turned to equities on Wall Street. Sentiment has improved in recent days and key stock indexes zoomed up without the threat of any pesky numbers getting in the way.
USD/EUR: the past year
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