The pound trended broadly higher on Wednesday, following the publication of the UK’s latest consumer price index.
Sterling is trading sideways so far this morning, with GBP/EUR flat at €1.1651 and GBP/USD stable at $1.2694. GBP/CAD is rangebound at CA$1.7128, while GBP/AUD and GBP/NZD hold steady at AU$1.9360 and NZ$2.0761, respectively.
Looking ahead, will hawkish minutes from the European Central Bank’s (ECB) December policy meeting bolster the euro today?
What’s been happening?
The pound initially raced higher yesterday, after GBP investors welcomed hotter-than-expected UK inflation figures.
Sterling firmed as December’s data reported inflation unexpectedly accelerated from 3.9% to 4% and eased expectations for a series of aggressive interest rate cuts from the Bank of England (BoE) this year.
Meanwhile, the US dollar remained on a positive trajectory on Wednesday with the safe-haven currency continuing to attract support amid widespread risk aversion.
Reinforcing USD demand was the publication of the latest US retail sales figures, which reported a stronger-than-expected uptick in sales growth last month.
The euro’s negative correlation with the US dollar left it on the defensive yesterday. Although these losses were tempered by comments from European Central Bank President Christine Lagarde, who suggested interest rates will remain on hold until at least the summer.
What’s coming up?
The ECB will publish the minutes from its December policy meeting later this afternoon.
If the minutes confirm that ECB policymakers haven’t begun discussing interest rate cuts yet, then the euro is likely to rise.
Any upside in the single currency may be supported by another speech by Lagarde if she maintains a hawkish tone.
Across the Atlantic, this afternoon will see the publication of the latest US initial jobless claims. Could an uptick in unemployment claims last week temper USD demand?
Finally, in the absence of any notable UK economic data, movement in the pound may be tied to market risk dynamics, potentially leading Sterling to falter if risk appetite remains weak.
