Yesterday, the pound strengthened against the US dollar after the release of unexpectedly elevated inflation figures for December. Concurrently, US retail sales data for the same period exceeded expectations. Nevertheless, the UK’s inflation data has effectively halted the possibility of rate cuts by the Bank of England in the short term. This contributed to the upward trajectory of the GBP/USD pair, with the exchange rate rallying from a low of 1.2590 to a peak of 1.2670 in the last 24 hours.
According to the data published by the UK Office for National Statistics, the country’s consumer prices index grew by 4% y-o-y in December following a 3.90% increase in November and surpassed forecasts of 3.80%. The reported figure reflects the first increase since February 2023.
The increase was led by a 12.90% y-o-y surge in tobacco prices in December 2023. Likewise, recreation and culture grew by 5.70% in the same period.
Inflation also rose by 6.40% y-o-y in the clothing and footwear sector. Furniture and household equipment posted an increase of 2.50% y-o-y in December. Likewise, communication surged by 8.50% in the same period. On the contrary, inflation declined by 8% y-o-y for food and non-alcoholic beverages. Also, transport recorded a decrease of 1.10%.
On a m-o-m basis, the UK consumer price index inched up 0.40% in December, matching the pace of December 2022.
Discounting energy, food, alcohol, and tobacco, the UK’s core Consumer Prices Index (CPI) exhibited a year-on-year growth of 5.10% in December. This marks a continuation of the previous month’s 5.10% increase and surpasses the anticipated forecast of a 4.90% rise. Noteworthy details include a CPI goods annual rate of 1.90% in December, accompanied by a CPI services annual rate of 6.4%.
According to the US Census Bureau, the country’s retail sales inched up 0.60% m-o-m in December to $709.90 billion, following a 0.30% increase in the previous month and higher than forecasts of 0.40% growth. On a y-o-y basis, retail sales surged 5.60% in December 2023.
Excluding auto (motor vehicle and parts) and gas, US retail sales rose by 0.60%, surpassing forecasts for a 0.30% rise.
Both clothing and clothing accessories and non-store retailers posted a growth of 1.50% m-o-m in December. During the same period, retail sales in health and personal care sectors declined 1.40%m-o-m in December. Gasoline stations posted a decrease of 1.30%.
Overall, US retail sales increased by 3.20% in 2023 compared with 2022.
The UK inflation data has poured cold water on interest rate cuts by the Bank of England. The UK’s higher-than-anticipated inflation coupled with rate hike bets are expected to keep the GBP/USD pair slightly bullish in the near term.
The historical price chart indicates that the GBP/USD pair is ascending after testing the support at 1.2590. The next resistance is anticipated to be only near 1.2980. Additionally, the stochastic indicator is ascending towards the bullish zone. Therefore, we anticipate the currency pair to remain in an uptrend in the near term. It would be prudent to open a long position after the GBP/USD pair crosses above the 50-day moving average.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
