GBP Firms Despite Cooling CPI

The Pound Euro (GBP/EUR) exchange rate recovered some of the previous day’s losses on Wednesday as investors reacted to the UK’s latest consumer price index.

DAILY RECAP:

The Pound (GBP) found its footing on Wednesday as markets digested the details of the UK’s January CPI.

The data showed that headline inflation cooled from 3.4% to 3% last month, while core inflation eased from 3.2% to 3.1%, in line with City economists’ forecasts.

However, the Bank of England (BoE) had expected headline inflation to cool to 2.9%, showing that price pressures are slightly more persistent than the BoE anticipated.

Furthermore, underlying services inflation is also looking stickier than expected, with ING calculating that core services inflation – a measure the BoE looks at closely – edged up from 4% to 4.3% in January.

Following the CPI, many economists forecast an interest rate cut in March. However, some outliers expect the bank to wait until April, when they can be sure the disinflation process is still underway, to lower borrowing costs.

This helped Sterling regain some lost ground on Wednesday.

Meanwhile, the Euro (EUR) lacked support on Wednesday amid an absence of Eurozone data, which left investors to focus on geopolitical headlines.

While Russia-Ukraine peace negotiations continued in Geneva, EUR investors seemed concerned about reports that the US was pressuring Kyiv into agreeing a deal despite a tough stance from Moscow on territorial concessions.

This anxiety around these difficult peace negotiations put some pressure on EUR.

Near-Term GBP/EUR Forecast: Eurozone Confidence in Focus

Looking forward, high-impact UK data thins out on Thursday, potentially leaving GBP traders to focus on a mid-tier release from the Confederation of British Industry (CBI). The latest industrial trends survey could put modest pressure on the Pound, as economists expect industrial orders to remain well in negative territory.

As for the Euro, the key data release will be the Eurozone’s latest consumer confidence index, due out in the afternoon. February’s preliminary figures are expected to show an improvement, which could provide the common currency with some support.

Elsewhere, geopolitical headlines could impact EUR. Any indication of progress in trilateral peace talks between Russia, Ukraine and the US could buoy the Euro, while ongoing anxiety could undermine the currency.