ForexLive European FX news wrap: UK inflation eases, markets eye US CPI report

Headlines:

• UK December CPI +2.5% vs +2.6% y/y expected
• Traders step up odds of BOE rate cut for next month
• US inflation data to take center stage today
• What is the distribution of forecasts for the US CPI?
• ECB’s de Guindos: The disinflation process is well on track
• ECB’s Villeroy: We have practically won the battle against inflation
• Japan finance minister says will closely monitor discussions at BOJ meeting next week
• German economy seen shrinking in 2024 from preliminary estimates
• Germany December wholesale price index +0.1% vs 0.0% m/m prior
• France December final CPI +1.3% vs +1.3% y/y prelim
• Spain December final CPI +2.8% vs +2.8% y/y prelim
• US MBA mortgage applications w.e. 10 January +33.3% vs -3.7% prior
• OPEC sees 2026 world oil demand keeping pace with their forecast for this year
• Japan shatters annual visitor record in 2024

Markets:

• JPY leads, GBP lags on the day
• European equities higher; S&P 500 futures up 0.3%
• US 10-year yields down 3 bps to 4.759%
• Gold up 0.3% to $2,685.57
• WTI crude up 0.4% to $77.80
• Bitcoin up 0.6% to $97,073

It’s all about the US CPI report today but in European trading, there was the side show from the UK CPI report.

The inflation numbers in the UK were softer than anticipated and that sent the pound for a bit of a spin during the session. GBP/USD fell initially to 1.2155 but quickly recovered back to push up to 1.2240. The softer numbers largely came as services inflation fell but the details showed that it could have been due to a one-off from the ONS measurement.

Patheon Economics’ Rob Wood pointed out that ONS had a cutoff date for 10 December this year for prices. And that led to a significant drop in airfares – coming well before the Christmas and New Year’s holiday period.

As for major currencies in general, the dollar was mostly steadier but is marked down against the Japanese yen. But so is every other currency I guess, with traders anticipating that the BOJ are really considering a rate hike for next week.

USD/JPY was down in Asia to 157.60 but extended losses under the 157.00 level in European morning trade, before keeping closer to the figure level now. That said, it is still down 0.6% on the day.

Meanwhile, EUR/USD didn’t do much as it hugged the 1.0300 level with large option expiries in play today.

Elsewhere, equities are keeping steadier while bond yields are down on the day. That is also helping to keep the likes of gold higher, with the precious metal continuing the rebound to nearly erase the Monday drop.

It’s now all on the US CPI report and it could potentially set up for a big reaction, all before we get to Trump’s inauguration in the week ahead.

This article was written by Justin Low at www.forexlive.com.