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GBP higher as UK inflation surprises to the upside

Good morning


Feds Waller was the latest Fed official to push back against the idea of early and fast rate cuts, preferring slow, methodical and carefully planned changes to interest rates if there is no rebound in inflation.  As one would expect, the US dollar pushed higher, taking GBPUSD and EURUSD down to a low of 1.2600 and 1.0855 respectively, each the lowest point since the rather dovish Fed meeting back in mid-December.  USDJPY also took advantage of the stronger US dollar, trading up to within a whisker of 148.00.


This mornings big news has come from UK inflation data, which showed a surprise increase to 4% from 32.9%, when a dip to 3.8% had been expected.  The core reading also came in at 5.1%, the same as last month, when a dip to 4.9% was expected.  This has served as something of a body blow to those hoping for rate cuts, GBP has ticked higher as a result, GBPUSD is now up to 1.2650 and GBPEUR has moved from 1.1605 up to 1.1640. 


This perhaps shows why Feds Waller warned of the market getting ahead of itself in terms of rate cuts when rebounds in inflation are possible.  The Red Sea issues affecting supply is highly likely to put upward pressure on prices alone.  There is a strong chance that the likes of Fed, ECB and BoE will not be able to lower interest rates as quickly  as the market is hoping.  Of these, ECB looks most likely to be able to cut rates which could see support for GBPEUR, although I see ECBs Simkus has said that although he sees some rate cut this year, he is less optimistic about cuts in March or April. 


UK government will vote on the Rwanda bill today, seen as a fairly crucial event for Sunak after two Conservative deputy chairmen resigned in order to join some 60 or so MPs who want to vote for changes to make the legislation tougher.  They are not against the bill but want to make sure loopholes are closed in order for it to serve as a true deterrent to illegal migrants.  It is quite a test for the already weak-looking Sunak.


China data overnight showed lower than expected GDP and retail sales.  China and Hong Kong shares tumbled, with China’s Shanghai Comp down 2% and Hang Seng down nearly 4%. 


Several central bank officials speaking later including ECBs Lagarde from Davos.  We also have US retail sales and industrial production, but unl;ess the data is far removed from consensus I think more attention will be on comments from those central bank officials.


I popped out again earlier this morning, it was a positively balmy -1.5°c, we might even get into positive numbers for a few hours today but its looking like another cold one tonight.  The latter part of January looks like it’ll be warmer but wetter.  Give me the cold any day.



-  10.00 EU HICP

-  13.30 US retail sales

-  14.00 Feds Barr, Bowman speak

-  14.15 US industrial production

-  15.15 ECBs Lagarde speaks

-  18.30 ECBs Nagel speaks

-  19.00 Fed beige book

-  20.00 Feds Williams speaks

-  00.00 AUS consumer inflation expectations

-  00.30 AUS unemployment


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