The British pound (USD) is on the defensive as the UK CPI for December showed mixed signals, with core inflation flat and services inflation slightly below expectations, according to BBH FX analysts.
After taking into account interest rate cuts by the Bank of England, the British pound faces headwinds
“The British pound is trading on the defensive against the US dollar and the euro. UK CPI inflation for December was mixed. Core CPI rose to 3.4% y/y versus 3.2% in November, one point higher than expected (3.3%) but one point lower than the Bank of England forecast (3.5%). Core CPI unexpectedly came in at 3.2% y/y (consensus: 3.3%) for the second month in a row while CPI for services rose less than expected by 4.5% year-on-year (consensus: 4.6%) versus 4.4% in November.”
“Overall, persistent above-target inflation in the UK suggests the Bank of England (BOE) can wait before resuming easing. A swap curve rate above 80% with the BoE likely to deliver a total of 50 basis points of interest rate cuts to 3.25% over the next 12 months represents a headwind for sterling.”
