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GBP/USD expects US inflation data above key supports

The USD will surely be volatile today, likely continuing in its downtrend if US inflation eases further.

The GBP/USD pair continued to capitalize on the weaker greenback and pushed to one-month highs recently, jumping above its 200-day moving average and confirming the bullish bias.

December retail sales surprised

As consumers spent money on Christmas food and presents, UK December retail sales soared, according to previously revealed economic statistics.

December is one of the most crucial months of the year for retailers, and many in the industry were afraid that the cost-of-living problem, extensive train strikes, and deep freeze would harm sales.

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According to the most recent BRC-KPMG retail sales tracker, however, overall sales grew 6.9% last month, compared to 2.1% in December 2021.

On a proportionate basis, they increased by 6.5% compared to a 0.6% increase the prior year. The majority of the rise was attributable to food sales, which increased 7.7% in the three months before December. During the same period, sales of non-food items jumped by 1.1%.

In 2022, the UK’s overall retail sales increased 3.1% year-over-year, with food sales up 3.0% and non-food sales increasing 3.3%.

“After an incredibly difficult year that saw inflation rise and consumer confidence plunge, the increase in holiday spending gave many retailers reason to celebrate,” said Helen Dickinson, chief executive officer of the British Retail Consortium.

All eyes on inflation, again

In other news, investors have anticipated that the Federal Reserve will decrease the pace of its interest rate rises at its next meeting in early February. Still, officials have made it abundantly clear that such a move will be data-dependent. In light of this, today’s consumer price index will be a crucial indicator of their achievement in containing inflation.

The headline inflation number is anticipated to increase by 6.5% compared to the same period a year earlier, a slowdown from the 7.1% rate recorded in the previous month. On a monthly basis, inflation is forecast to be unchanged. The core CPI, which excludes food and fuel, is anticipated to be 5.7%, compared to 6% a month ago and 0.3% on a monthly basis, versus 0.2% in November.

Another interesting topic: Focus on central banks: will ECB create havoc in Europe in 2023?

“This year’s FX market proposition remains whether U.S. inflation can acquiesce enough to allow the Fed to cut later this year,” said analysts at ING in a note. “The markets price a 50/60bp hike into the spring, then a cut of a similar magnitude by year-end.”

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