EUR/GBP – Inflation data casts doubt over interest rate cuts

  • UK inflation data surprises to the upside
  • Eurozone inflation unrevised for December
  • EURGBP breaks lower after UK data

UK inflation figures were slightly higher than expected, with headline CPI actually rising a little back to 4%, rather than falling to 3.8%, and core remaining at 5.1% rather than falling to 4.9%. This is hardly a massive blow but investors have become accustomed recently to data delivering and more, so this is perhaps being viewed as a bigger setback than it actually is.

This is the problem with how markets positioned going into the end of 2023 and at the start of this year, there isn’t much wiggle room as far as the data is concerned. Small disappointments can knock market sentiment in a more significant way which could make the rest of Q1 a more turbulent ride than investors would prefer.

Eurozone inflation still on course to enable a Q1 rate cut from the ECB

Eurozone final inflation figures threw out no surprises, with the initial readings all unrevised for December. That said, what they did do is confirm that the ECB is well on its way to delivering price stability, of inflation below but close to 2%. Sure, headline inflation rose from 2.4% to 2.9% last month, but it’s expected to decline again over the next couple of months which will ensure March is the live meeting no policymaker currently wants us to believe it will be.

The bloc may already be in recession and its largest economy perhaps in a double dip, there’s only so cautious and stubborn the central bank can be before its actions are once again more damaging than good.

Double bottom not the bullish signal it could have been

EURGBP broke lower following today’s inflation release from the UK after a period of consolidation in which a double bottom had formed.


Source – OANDA

The pair was already trending lower since the turn of the year but the double bottom – more visible on the 4-hour chart below – did suggest the tide may be turning once more. But instead, today is a reminder that the formation isn’t complete until the breakout occurs, and the top of the double bottom was holding firm. On this occasion, the data provided the catalyst for a breakout in the other direction but traders were clearly concerned that could be the case, hence the hesitation to break higher.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam