/

Sterling weakens after cooler UK CPI data

1046 views
1 min read

The EURGBP cross extended the rally to 0.8445 during early European trading hours on Wednesday.

The Pound Sterling weakened against the shared currency after the cooler-than-expected UK Consumer Price Index (CPI) inflation data for December.

Later on Wednesday, the Eurozone Industrial Production will be released. Also, European Central Bank Vice President Luis de Guindos will deliver a speech on the same day.

Data released by the Office for National Statistics showed that the UK’s headline CPI rose 2.5% YoY in December, compared to 2.6% in November. This reading came in softer than the 2.7% expected.

The Core CPI, which excludes the volatile prices of food and energy, climbed 3.2% YoY in December versus 3.5% prior, below the market consensus of 3.4%. Meanwhile, the monthly UK CPI inflation increased to 0.3% in December from 0.1% in November. Markets expected a 0.4% print.

The Pound Sterling attracts some sellers in an immediate reaction to the downbeat UK CPI inflation data.

Additionally, the concerns about the UK’s fiscal sustainability and rising bond yields might continue to undermine the GBP. Analysts expect higher borrowing costs may force the government to rein in spending or raise taxes to meet its fiscal rules, potentially weighing on the UK’s future growth.

On the Euro front, the ECB delivered rate cuts four times last year, and traders expect three or four moves in 2025 due to the Eurozone’s weak economic outlook.

This, in turn, could exert some downward pressure on the Euro against the GBP.

ECB Governing Council member Olli Rehn said on Monday that, “against the backdrop of disinflation being on track and the growth outlook having weakened it makes sense to continue rate cuts.”

(Source: OANDA)