RedFX Snap: V Strong US data / GBP falls after weak inflation print

EUR/USD:

The USD gained ground on Wednesday 15th Feb and pushed forward on Thursday 16th as well, pushing EUR/USD to recent lows under 1.0700 and GBP/USD further towards 1.200. 

Retail Sales rose 3% in January - much higher than the 1.8% expected, adding to the recent slew of positive data from the US.

GBP

A weaker than expected inflation figure hurt GBP this morning - GBP/EUR falling under 1.1300 and GBP/USD falling under 1.2100

UK Office for National Statistics reported that the headline CPI declined by 0.6% in January, more than the 0.4% fall anticipated

It was the CORE figure that made the difference - coming in 0.5% under expectations (annualised).
As the battle against inflation will not need so many interest-rate hikes, the strength underpinning the currency has faded.

Commerzbank now see the end of rate hikes in March and add that IF the Bank of England increases its dovish comments in the coming weeks, GBP will continue to fall.

Analysis from SocGen below shows the medium-term pressure that will hurt GBP, as the market focus will now be upon growth in the UK - which many economists are saying will lag behind most G10 nations:

Sterling got a lift last week from some relative optimism about growth. However, economists at Société Générale expect the GBP/EUR pair to advance nicely on forecasts of extended economic stagnation. It is all about growth (and stagnation) 
“The release of softer-than-feared inflation data in the UK has turned GBP around today, [... falling..] but the growth story will be more important in the end.”

“Unfortunately, replacing the fears of the gloomiest UK forecasts with expectations of lengthy stagnation is about as much as can be hoped for. The slow fall in GBP/EUR is set to last all year.”

Unfortunately, after 2 strong weeks, GBP is now under pressure. Friday's Retail Sales number will be watched, bubt will have to be VERY strong to reverse this backdrop of weak growth.

Today’s rates:

• GBP/EUR 1.1250

• GBP/USD 1.2020

• GBP/AUD 1.7450

• GBP/JPY 161.00