The dollar remained stable after US consumer prices rose slightly in December and monthly underlying inflation pressures retreated. This could allow the Federal Reserve to keep interest rates unchanged through this year.
On Tuesday, the Labor Department said its Consumer Price Index increased by 0.2% last month and was held back by declines in the costs of used cars and trucks, airline tickets, household furnishing and operations.
Last month, the US Central Bank left interest rates steady and signalled that the monetary policy could remain on hold this year after it reduced borrowing costs three times in 2019.
Yesterday, sterling fell to a seven week-low against the euro and a new 2020 low versus the dollar as investors worried about the state of the economy, speculating that it would lead the Bank of England to cut interest rates this month.
The pound has struggled of late after another Bank of England Policymaker had said he would vote for a rate cut later this month, unless economic data improved significantly. Money markets are now pricing in a close to 50% chance for a 25 basis point cut to rates from the current level of 0.75%, up from around a 20% chance on Friday.
The pound is also struggling due to concerns about Britain’s ability to agree to a trade deal with the European Union before the end of the Brexit transition period. Prime Minister Boris Johnson has said the transition period must conclude at the end of 2020.
10:30 – GBP: Consumer Pricing Index (YoY) (Dec); expected to remain at 1.5%.