Yesterday’s eagerly awaited US CPI inflation report showed that prices edged up in December, a reminder that prices pressure remain in the US economy. The index rose 0.3 month over month and 3.4% year over year in December, higher than the respective estimates of 0.2% and 3.2%. The print followed a soft November release and pushed the dollar index to a five day high before reversing. Both GBPUSD and EURUSD gained after the data release but remain below the psychological 1.28 and 1.10 respectively. This afternoon the attention shifts back to the US as we await the release of December PPI as investors search for further clues on the inflation outlook for the US and an indication of just when the Fed will be able to start reducing interest rates.
Data released this morning showed that the UK economy enjoyed a modest rebound in November, leaving the odds of a technical recession on a knife edge. GDP rose 0.3% in November, bouncing from a drop of the same magnitude in October, and above the 0.2% consensus. The data shows that the UK needs a flat December print to avoid a contraction, leaving the country close to stagnation at the start of an election year. Persistent inflation and high interest rates continue to weigh on the UK, however the outlook for 2024 appears a little less gloomy with many economists upgrading their growth forecasts on the back of an improved inflation outlook and hopes that the BoE will soon be able to lower interest rates. The pound pretty much shrugged off the data, holding above support at 1.2750 with 1.28 the next target on the upside.
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