The British pound underperformed its major peers on Wednesday after the UK’s Office for National Statistics (ONS) reported that inflation grew faster than expected in December.
The UK’s headline inflation rate rose to 3.4% year-on-year, faster than estimates of 3.3% and November’s reading of 3.2%. On a monthly basis, the headline CPI rose at an expected pace of 0.4% after contracting by 0.2% in November.
The UK’s core CPI – which excludes volatile components such as food, energy, alcohol and tobacco – rose at a steady pace of 3.2% year-on-year, as expected.
Meanwhile, inflation in the services sector, which is closely tracked by Bank of England officials, accelerated to 4.5% year-on-year from the previous reading of 4.4%.
Signs of continued price pressures are expected to weigh on market expectations of a Bank of England rate cut in the near term. At its December policy meeting, the Bank of England indicated that monetary policy would remain on a “gradually downward” path.
Going forward, investors will focus on UK retail sales data for December and preliminary global PMI data for January. Both indicators will be released on Friday.
The price of the British pound today
The table below shows the percentage change of the British Pound (GBP) against the major currencies listed today. The British pound was weakest against the New Zealand dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.12% | 0.22% | -0.13% | 0.03% | -0.16% | -0.16% | 0.26% | |
| euro | -0.12% | 0.10% | -0.24% | -0.09% | -0.27% | -0.28% | 0.14% | |
| GBP | -0.22% | -0.10% | -0.36% | -0.18% | -0.38% | -0.38% | 0.04% | |
| JPY | 0.13% | 0.24% | 0.36% | 0.16% | -0.03% | -0.04% | 0.39% | |
| Canadian | -0.03% | 0.09% | 0.18% | -0.16% | -0.19% | -0.20% | 0.22% | |
| Australian dollar | 0.16% | 0.27% | 0.38% | 0.03% | 0.19% | -0.00% | 0.41% | |
| New Zealand dollar | 0.16% | 0.28% | 0.38% | 0.04% | 0.20% | 0.00% | 0.42% | |
| Swiss franc | -0.26% | -0.14% | -0.04% | -0.39% | -0.22% | -0.41% | -0.42% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the British pound from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily Summary Market Drivers: Trump’s speech at the World Economic Forum in Davos remains a major catalyst for global markets
- The British pound fell to approximately 1.3410 against the US dollar during the European trading session on Wednesday. GBP/USD is correcting with the US dollar trading higher, as investors await US President Donald Trump’s speech at the World Economic Forum (WEF) in Davos.
- At the time of writing, the US Dollar Index (DXY), which tracks the value of the US currency against six major currencies, is trading 0.13% around 98.70. However, it is close to the two-week low of 98.20 hit on Tuesday.
- The US dollar is under widespread pressure amid disagreements between the US and EU members over the future of Greenland. Over the weekend, US President Trump threatened to impose 10% tariffs on several EU members and the UK for opposing Washington’s plans to acquire Greenland.
- In response, many EU members and officials around the world criticized Trump’s tariff threats, referring to them as “blackmail.” European Central Bank President Christine Lagarde said in an interview with CNN on Tuesday at the World Economic Forum that Trump’s tariff threats have undermined US-EU relations. Lagarde added that companies from both economies are struggling to gauge “the potential impact of the additional duties.”
- Investors will be closely watching President Trump’s speech in Davos for clues about what actions Washington could take to pressure EU members after opposing US control of Greenland.
- Domestically, investors are awaiting the announcement of the new Federal Reserve Chairman, which is expected early next week, as US Treasury Secretary Scott Besent said on Tuesday. “There are currently four candidates for the position,” Besant added.
Technical Analysis: GBP/USD is struggling above the 20-day EMA
GBP/USD is trading lower near 1.3405 at the time of writing. The price is holding marginally below the 20 Exponential Moving Average (EMA) at 1.3429, which has stabilized after a steady rise, indicating consolidation.
The 14-day Relative Strength Index (RSI) at 53 (neutral) shows a slight improvement in momentum. Measured from the high of 1.3789 to the low of 1.3006, any bounce would face a 61.8% retracement at 1.3490, while the 50% retracement at 1.3397 represents a pivotal threshold.
A push through RSI 60 would reinforce upward momentum, while a drop below 50 would reconfirm bearish pressure. A daily close above correction resistance would extend the rebound, while a break below the 20 EMA could revive the broader pullback.
(The technical analysis for this story was written with the help of an artificial intelligence tool.)
Frequently asked questions about inflation
Inflation measures the rise in the prices of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a monthly (MoM) and yearly (YoY) basis. Core inflation excludes more volatile items such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the number that economists focus on and is the level targeted by central banks, which are tasked with keeping inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a monthly (MoM) and yearly (YoY) basis. The core CPI is the number targeted by central banks because it excludes volatile food and fuel inputs. When the core CPI rises above 2%, it typically causes interest rates to rise and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually leads to a stronger currency. The opposite is true when inflation falls.
Although it may seem counterintuitive, high inflation in a country causes the value of its currency to rise and vice versa for lower inflation. This is because the central bank will typically raise interest rates to combat rising inflation, which attracts more global capital flows from investors looking for a profitable place to park their money.
Previously, gold was the asset investors turned to during times of high inflation because it maintained its value, and while investors will often continue to buy gold for its safe holdings in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will raise interest rates to combat it. High interest rates are negative for gold because they increase the opportunity cost of holding gold versus interest-bearing assets or putting money in a cash deposit account. On the flip side, lower inflation tends to be positive for gold because it lowers interest rates, making the shiny metal a more viable investment alternative.
