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Jan 17 - 11:55 AM

GBP/USD - COMMENT-Sterling Rise Post-UK Inflation Undone After Hot US Retail Sales

By Paul Spirgel  —  Jan 17 - 09:45 AM

GBP/USD's post-UK CPI rally ran into resistance ahead of 1.27 in early NorAm, and moved lower still after December U.S. retail sales came in hot, further diminishing early 2024 Fed rate-pivot-lower expectations, though cable is likely to remain anchored in its 2024 1.2597-1.2788.

Recent movements in FX majors have been predicated on inflation, and by extension, relative interest rate expectations as traders grapple with when, and by how much, central banks will begin cutting interest rates.

The UK CPI data, while indicating core and headline inflation is receding at a faster pace than BoE projections, remains stubbornly high and likely precludes a early rate cut.

However, high-for-longer rates while not a boon for the UK recovery and should keep sterling bid as UK rates remain higher than USD and other lower-yielding currencies.

As for sterling expectations versus the USD, and other major currencies, persistently high inflation and less-dovish comments by Fed and ECB members are likely to keep sterling near current levels.

GBP/JPY on the other hand may be ripe for further gains as BoE-BoJ rate views diverge.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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