UK Inflation Surprise Boosts the Pound | Daily Report 19/02/25
GBP
The Pound moved higher against its major peers after the release of the United Kingdom Consumer Price Index data for January, which showed that inflationary pressures accelerated at a faster-than-expected pace. In the year, the headline CPI rose by 3%, faster than estimates of 2.8% and the December reading of 2.5%. In the same period, the core CPI – which excludes volatile components of food, energy, alcohol, and tobacco – grew by 3.7%, as expected, faster than the former reading of 3.2%. Month-on-month headline CPI inflation deflated at a slower-than-projected pace of 0.1%, compared to the 0.3% growth in December. Economists expected headline inflation to deflate at that pace this month.
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EUR
The Eurozone ZEW Economic Sentiment Index in February improved from 18 to 24.2, suggesting that consecutive rate cuts by the European Central Bank have improved the economic outlook. In the meantime, ECB’s Holzmann said there’s a probability of a March rate cut, though he said that decisions in favour of additional easing are becoming more demanding
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USD
Investors will focus on FOMC minutes for the January decision to get cues about how long the Federal Reserve will keep interest rates steady in the range of 4.25%-4.50%. In the January meeting, the Fed announced a pause in its monetary expansion cycle after cutting interest rates by 100 basis points in the last three meetings of 2024. Fed Chair Jerome Powell guided that monetary policy adjustments would become appropriate when officials see “real progress in inflation or at least some weakness in the labour market”. On Tuesday, San Francisco Fed Bank President Mary Daly also favoured a “restrictive” monetary policy stance until she sees a continuation in progress in the disinflation trend. Meanwhile, renewed fears of tariffs by United States President Donald Trump could strengthen the US Dollar. President Trump said on Tuesday that he plans to impose 25% tariffs on imports of automobiles, semiconductors, and pharmaceuticals, which could increase further over the next year. This could lead to a slowdown in the global economy.
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