Talking Points
- UK inflation in December rose to 1.6%, above the forecast 1.4% and the previous 1.2%
- Core inflation also climbed to 1.6%, above the expected 1.4% and the previous 1.4%
- Sterling climbed in response, as did the yield on the 10-year UK government bond
- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.
The British Pound jumped against the US Dollar and the yield on the benchmark 10-year UK government bond, or Gilt, climbed after news of stronger-than-expected UK inflation in December. The headline rate was 1.6%, its highest since July 2014 – above the forecast 1.4% and the previous month’s 1.2%. The core rate was also 1.6%, its highest since August 2014 and above both the expected 1.4% and November’s 1.4%.
Inflation was boosted by higher air fares and the weakness of sterling, and in response GBPUSD firmed to 1.2188, its strongest level since Friday.
Chart: GBPUSD 1-Minute Timeframe (January 17, 2017)
EURGBP rose initially but then fell, while the 10-year Gilt yield climbed to 1.288% from 1.272% just before the data.
While the markets are likely to be dominated today by UK Prime Minister Theresa May’s speech on Brexit, due later in the session, the data showed that economics as well as politics remain an important driver of foreign exchange rates.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Don't trade FX but want to learn more? Read the DailyFX Trading Guides.
