GBP/USD remains near 14 1/2-month low with focus on US CPI

The GBP/USD currency pair remained pressured not far from a 14 1/2-month low of 1.2099 on Wednesday, after data showed annual headline and core inflation rates in the UK had slowed in December.

Annual inflation rate in the UK eased to 2.5% in December from 2.6% in November, data by the Office for National Statistics showed on Wednesday. Market consensus had pointed to a steady rate at 2.6%.

Services inflation slowed to 4.4%, the lowest since March 2022, from 5% in November.

UK’s annual core CPI inflation, which excludes volatile categories such as food and energy, decelerated to 3.2% in December from 3.5% in November. It has been the lowest core inflation rate since September.

Investors are now expecting the key US CPI inflation report that could provide further clues over the Federal Reserve’s monetary easing path.

Annual headline consumer inflation in the US probably picked up to 2.9% in December, according to market consensus, from 2.7% in November.

Annual core CPI inflation probably steadied at 3.3% in December.

A surprise to the upside could further limit the scope for the Federal Reserve to reduce interest rates.

But, market focus also remains firmly on US President-elect Donald Trump’s return to the White House later this month and his policy plans, including tariffs, which are considered as inflationary.

“Markets are still looking ahead to the incoming administration’s policies and the impact on prices,” Carol Kong, currency strategist at Commonwealth Bank of Australia, was quoted as saying by Reuters.

“Even though FOMC officials are sounding more cautious about rate cuts recently, they are actually not so alarmed by the recent inflation readings. They are actually more worried about the future prospect of inflation under a second Trump term.”

The GBP/USD currency pair was last edging up 0.19% to trade at 1.2234, as the US Dollar rally paused ahead of US CPI test.