Sterling resumes losses before growth data
Sterling fell in European trade on Thursday against a basket of major rivals, resuming losses after a two-day hiatus and approaching a 14-month nadir.
The pound is still under pressure due to the prospects of lower UK interest rates in February, as investors await crucial growth data later today to assess the odds.
The Price
The GBP/USD pair fell 0.25% today to $1.2208, with a session-high at $1.2248.
The pound rose 0.25% on Wednesday away from a 14-month trough at $1.2099.
UK Inflation
UK consumer prices rose 2.5% y/y in December, missing estimates of 2.6%, and down from 2.6% in the previous reading.
Core consumer prices rose 3.2%, below estimates of 3.4%, and down from 3.5% in the previous reading.
It shows how inflationary pressures are receding from BOE policymakers, with the bank likely to welcome such developments.
UK Rates
Following the data, the odds of a Bank of England interest rate cut in February rose from 60% to 80%.
Traders expect 65 basis points of UK rate cuts overall in 2025.
Later today, important GDP growth data will be released and will impact the pricing for future BOE rate cuts, with the growth rate estimated at 0.2% in November, compared to a 0.1% dip in October.
Yen rushes to four-week high after Kazuo Ueda's remarks
The yen rushed higher on Thursday against the dollar to a four-week high, expanding the gains for the second straight session following bullish remarks from Bank of Japan Governor Kazuo Ueda, which bolstered the case for an interest rate hike next week.
The gains are also boosted by a steep drop in US 10-year treasury yields as US core inflation slowed down, boosting the case for a Fed rate cut in March.
The Price
The USD/JPY fell 0.8% to 155.20 yen per dollar, the lowest since December 19, with a session-high at 156.53.
The yen rose 1% on Wednesday against the dollar, marking the fourth profit in five days, and the heftiest since November 29 following bullish remarks from BOJ officials.
Ueda
Bank of Japan Governor Kazuo Ueda said the BOJ will raise interest rates and adjust the degree of policy easing if the economy keeps sending signals of improvement.
Ueda said the central bank will discuss the country’s economic developments at its meeting next week and will consider carefully before taking the interest rate decision.
The Bank of Japan Deputy Governor Ryozo Himino said the BOJ will discuss a potential rate hike next week amid gains in wages, and more clarity in regards to US policies.
Japanese Rates
Following the remarks, the odds of a BOJ interest rate hike in January rose to 60%, with investors now waiting for more data and remarks this week to gather more clues.
US Yields
US 10-year treasury yields fell 0.1% today, almost trespassing the one-week low hit yesterday at 4.637%, in turn pressuring the greenback.
The yields marked their heftiest one day loss since August 2, 2024 yesterday after US core consumer prices slowed down unexpectedly last month, reducing the pressures on Fed officials.
US Rates
According to the Fedwatch tool, the odds of a 0.25% Fed rate cut in January stood at just 3%.
The odds of a similar cut in March rose from 23% to 30%.
