New UK inflation rate data revealed an unexpected fall to 2.5%, creating some relief for Chancellor Rachel Reeves and clearing the path for a Bank of England interest rate cut. Tuesday also saw the end to USD’s run of strong data and a euro that benefited from its competitors’ wobbles.
On Tuesday, following a tough week for the pound that saw GBP suffering six straight days of decline against the dollar, UK Chancellor Rachel Reeves faced down opposition complaints in the Commons and Daily Mail headlines calling her a ‘lame duck’. The chancellor stood by the fiscal rules she set out in the autumn budget, and the price of 10-year bonds fell slightly. Reeves gains some relief from this morning’s inflation data, which paves the way for a possible quarter-point interest rate cut to 4.5% next month.
The dollar had a mixed Tuesday, losing ground against the euro. This was in part because of below-market-expectations PPI (Producer Price Index) numbers coming out of the US. After a string of major gains for the US economy ahead of President Trump’s inauguration next week, the soft numbers were the first “miss” for the US economy in a week. US Inflation data due out later today will reveal if the PPI numbers were the start of a trend or an aberration.
The euro took advantage of the dollars vulnerability and made gains on both USD and GBP. However, this afternoon will see Germany publish its full year GDP growth figures. The German economy is forecast to contract for the second year running. Competing with the inflation data out of the UK, the euro may have a challenging day.
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