GBP/USD moved lower after two days of gains, trading around 1.2220 during Asian trading hours on Thursday (16/1). The pound (GBP) came under downward pressure following weaker-than-expected inflation data from the United Kingdom (UK) released on Wednesday.

The yield on the benchmark 10-year UK bond fell to 4.73%, retreating from a multi-decade high, after official data showed an unexpected drop in UK headline inflation, raising expectations of a rate cut by the Bank of England (BoE).

The UK Consumer Price Index (CPI) rose by 2.5% year-on-year in December, down from 2.6% in November and below market expectations of 2.7%. Despite the slowdown, the reading remained above the Bank of England (BoE) target of 2%.

Meanwhile, the annual core CPI, which excludes volatile food and energy items, grew by 3.2% in December, compared to a 3.5% increase in November, which missed market expectations of 3.4%. Also, services inflation eased sharply to 4.4% year-on-year in December, down from 5% in November.

However, the GBP/USD pair strengthened as the US Dollar (USD) extended its decline following the cooler-than-expected US Consumer Price Index (CPI) inflation data for December, which raised speculation that the US Federal Reserve (Fed) could implement two interest rate cuts this year.

The US CPI rose by 2.9% year-on-year in December, up from 2.7% in November, which was in line with market expectations. On a monthly basis, the CPI increased by 0.4%, following a 0.3% increase in November. U.S. Core CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, slightly below the previous month's 3.3% and analysts' forecast of 3.3%. On a monthly basis, core CPI edged up 0.2% in December 2024.

The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was trading near 109.00. Meanwhile, the yields on the 2-year and 10-year U.S. Treasury notes were at 4.27% and 4.66%, respectively. Both yields fell more than 2% on Wednesday as weaker U.S. core CPI data fueled expectations that the Federal Reserve's easing cycle could resume.(AL)

Source: FXstreet