OUR SUMMARY
GBP is seeing a rise this morning, offering a sense of relief for traders after CPI numbers came in lower than expected. This has increased the likelihood of two rate cuts by the Bank of England this year. While lower inflation figures would typically weigh on GBP, in the current context, they are helping to ease concerns about the UK economy. The recent spike in gilt yields due to an increased risk premium is starting to subside, giving GBP some support.
However, broader concerns remain. The upcoming GDP numbers for November are closely watched, with risks to the UK’s outlook still present. A report from the British Retail Consortium indicates that two-thirds of UK retailers plan to raise prices due to higher taxes, while over half intend to cut staff hours, and 46% foresee reducing headcount. As such, any GBP relief could be short-lived.
Looking ahead, much attention will be on today’s CPI report from the US. Given yesterday’s lower PPI numbers and reports suggesting a gradual approach to tariffs, markets could react strongly to a soft CPI print, possibly leading to profit-taking on the USD’s recent gains. This could extend the recent rebound in GBP/USD and EUR/USD. Conversely, a higher-than-expected CPI figure could see the USD strengthen once more.
