Pound Rebounds After U.K. CPI Data

(RTTNews) - The British pound rebounded from recent weakness against other major currencies in the European session on Wednesday, after reacting wildly to data showing that U.K. consumer price inflation moderated unexpectedly in December.

Data from the Office for National Statistics showed that the U.K. consumer price index registered an annual increase of 2.5 percent in December, weaker than the 2.6 percent rise in November, prompting traders to price in a higher number of BoE interest rate cuts for the year. The rate was seen unchanged at 2.6 percent.

Month-on-month, the CPI climbed 0.3 percent, following a 0.1 percent rise in November. Prices were expected to gain 0.4 percent.

Another data from ONS showed that input prices fell for the fifth straight month in December. Input prices dropped 1.5 percent annually after a 2.1 percent drop.

Meanwhile, factory gate prices rose 0.1 percent after falling for three consecutive months. Prices were down 0.5 percent in November.

On a monthly basis, input prices edged up 0.1 percent compared to flat growth in November. Likewise, output prices gained 0.1 percent after November's 0.4 percent gain.

Meanwhile, U.K. retailers plan to increase prices this year in response to increased National Insurance costs, according to a survey of Chief Financial Officers, conducted by the British Retail Consortium.

Two-thirds of respondents said they will lift prices and around half said they would be reducing number of hours/overtime work.

Investors await the U.S. consumer price index (CPI) report for December 2024 later in the day for clues on the path of Federal Reserve policy.

Economists expect U.S. consumer prices to rise by 0.3 percent in December, matching the increase seen in November. The annual rate of growth is expected to accelerate to 2.9 percent from 2.7 percent.

Reports emerged that Donald Trump's incoming economic team is considering a plan to gradually raise tariffs month by month.

In the European trading today, the pound rose to 0.8420 against the euro, from an early more than a 4-1/2-month low of 0.8465. The pound may test resistance near the 0.82 region.

Against the U.S. dollar, the pound edged up to 1.2241 from an early low of 1.2161. On the upside, 1.25 is seen as the next resistance level for the pound.

Against the Swiss franc and the yen, the pound advanced to 1.1158 and 192.08 from an early 2-day lows of 1.1095 and 191.29, respectively. If the pound extends its downtrend, it is likely to find support around 1.09 against the franc and 200.00 against the yen.

Looking ahead, U.S. MBA mortgage approvals data, U.S. CPI data for December, U.S. NY Empire State manufacturing index for January, Canada manufacturing and wholesale sales reports for November, U.S. EIA crude oil data and U.S. Fed Beige Book report are slated for release in the New York session.