Sterling rose in European trade on Wednesday against a basket of major rivals, rising for the third straight session against the US dollar after US consumer prices data, which showed inflation rose for the second straight month. 

As inflationary pressures resume, the Bank of England policymakers are likely to hold off cutting interest rates at this week’s policy meeting. 

The Price

The GBP/USD pair rose over 0.1% to $1.2727, with a session-low at $1.2680.

The pair closed up 0.25% on Tuesday on track for the second straight profit, moving away from two-week lows at $1.2608.

The pound gained ground after strong UK wages data for October. 

UK Inflation 

UK consumer prices rose 2.6% y/y in November, matching expectations, and up from 2.3% in October.

Core prices, excluding food and energy, rose 3.5%, below estimates of 3.6%, but up from 3.3% in October. 

Services prices rose 5% in November, same as October.

The data showcases the strength of the inflationary pressures in the UK and will likely lead to a longer period of tight monetary policies. 

UK Rates

Following the data, the odds of a 0.25% interest rate cut by the Bank of England plummeted to just 2%.

The UK interest rate futures market is now expecting a total of 60 basis points of rate cuts by the BOE by the end of 2025, down from 61% before inflation data.

UK consumer prices rose 2.6% y/y in November, matching expectations, and up from 2.3% in October.

Core prices, excluding food and energy, rose 3.5%, below estimates of 3.6%, but up from 3.3% in October. 

The yen rose in Asian trade on Wednesday against a basket of major rivals, expanding gains for the second day against the dollar and rebounding from three-week lows ahead of the Bank of Japan’s last policy meeting of 2024. 

According to media reports, the BOJ will likely maintain interest rates unchanged and is not in a hurry to normalize policies as inflationary pressures recede. 

The Price 

The USD/JPY pair fell 0.1% to 153.35 yen per dollar, with a session-high at 153.78.

The yen rose 0.4% on Tuesday against the dollar, marking the first profit in seven days and moving away from three-week lows at 154.47.

BOJ

According to Reuters, five different sources said the Bank of Japan prefers to maintain interest rates unchanged this week as they continue to analyze risks abroad and wages forecasts.

The sources said there’s no consensus in the BOJ about the final decision, with some still estimating that Japan has fulfilled the conditions of raising interest rates in December. 

A BOJ source told Reuters that Japan isn’t in a position that requires an immediate rate hike, with another source believing that time could be used to analyze data in a deeper and fuller way. 

Japanese Rates 

Following the report, the odds of a 0.25% interest rate hike by the BOJ next week tumbled from 65% to 25%.

Oil prices declined on Tuesday and relinquished recent gains as traders await the Federal Reserve’s policy decisions and US crude inventory data. 

Earlier Chinese data showed retail sales rose 3% y/y in November, slowing down from 4.8% in October, and triggering concerns about demand in the world’s second largest economy. 

And tomorrow, the EIA will release official US crude inventory data, while the Fed is scheduled to issue its interest rate decisions. 

On trading, Brent February futures fell 1% to $73.19 a barrel, the lowest since December 10.

US crude futures due in January fell 0.9%, or 63 cents to $70.08 a barrel.