Inflation Impact on USD, UK GDP Resilience, and ECB Caution on Rate Cuts.

USD: Inflation Boosts Dollar Amidst Fed Rate Cut Speculations

On Thursday, US Consumer Price Index (CPI) data revealed a 3.4% year-on-year increase in December, surpassing both November’s figure and the expected 3.2%. Despite initially strengthening the US Dollar, the market remains skeptical that the Federal Reserve (Fed) will avoid a March rate cut. The CME FedWatch Tool indicates a 70% probability of a 25 basis points cut, while the 10-year US Treasury bond yield stays below 4%. Investors look to producer inflation (PPI) for a significant rise to sway expectations of a delayed Fed policy shift.

GBP: UK GDP Growth Resilience Supports Pound

The UK’s Office for National Statistics reported a 0.3% monthly growth in Gross Domestic Product (GDP) for November, countering October’s 0.3% contraction and providing support for the Pound against the USD. However, the technical outlook for the GBP/USD pair remains bearish, with the 50-hour EMA on the verge of crossing below the 100-hour EMA. A Bear Cross could signal a downward trend, supported by the 14-day Relative Strength Index (RSI) in bearish territory. Immediate resistance is at the confluence of the 100-hour EMA and 1.2700, with upside barriers at 1.2760-1.2765, 1.2785, and 1.2828.

EUR: ECB Caution on Rate Cuts Amidst Wage Inflation

The annual World Economic Forum in Davos has drawn attention to the Eurozone’s wage inflation exceeding 5%, prompting caution from ECB speakers. Mario Centeno emphasizes avoiding inflation below 2%, opposing aggressive rate cuts. While some ECB officials advocate delaying cuts until summer, even dovish members caution against rapid reductions. ECB Chief Economist Philip Lane warns of quick cuts fueling inflation and highlights growing wages above the long-run equilibrium rate. With key Eurostat data expected in June, market speculation about an April cut faces uncertainties, despite being fully priced.