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GBP on Top on Hot CPI, AUD Downtrend Resumes

FOREX
  • GBP is seeing support across European hours on the back of the higher-than-expected CPI print – which unexpectedly ticked up to 4.0% from 3.9% - above all submitted analyst expectations. Perhaps more notably, both the core CPI print and services inflation metric were ahead of forecast, forcing markets to partially unwind some of the rate cut pricing bedded in since the beginning of the year.
  • Resultingly, the market pricing of May rate cut has faded. Having been fully priced at the beginning of the week, just 17bps is now priced for that meeting. GBP/USD has bounced off weekly lows of 1.2597, to narrow in on 1.2700. A recovery above 1.2727 would reverse the entirety of the Tuesday sell-off.
  • President Lagarde declined to comment directly on ECB rate cut pricing in an early appearance, however hinted heavily toward policy easing in the Summer. The comments were broadly infitting with GC speeches earlier this week, but EUR/USD remains in a downtrend key support at the Jan 5 low was breached, opening the 50% retracement of the Oct-Dec ’24 rally at 1.0793.
  • Antipodean currencies are underperforming as the risk backdrop remains fragile. AUD and NZD hold among the session’s poorest performers, extending the AUD/USD losing streak and resuming the downtrend through support at the 200-dma of 0.6583 – which broke across the opening hours of the Wednesday session.
  • The World Economic Forum in Davos continues, with appearances from several political leaders scheduled, including the French President and the Iranian foreign minister. Pre-media blackout appearances from ECB’s Vujcic, Knot and Lagarde are due as well as Fed’s Barr, Bowman and Williams.
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