EUR/GBP gained momentum near 0.8434 following the release of the UK's monthly Gross Domestic Product (GDP) and factory data for November. The UK economy expanded by 0.1% in November after falling by 0.1% in October, slower than the expected 0.2% growth. Monthly Industrial and Manufacturing Production contracted by 0.4% and 0.3% in November. Sluggish industrial numbers, coupled with concerns about the UK's fiscal outlook and the risk of stagflation, will reinforce the interest rate cut bets from the Bank of England's February meeting, undermining the pound.

Similarly, Germany's recent GDP figures provoked expectations for further interest rate cuts by the European Central Bank (ECB), pressuring the euro. Additionally, European Central Bank (ECB) policymaker François Villeroy de Galhau signalled a 2% interest rate by summer, adding to the downside of the single currency. Germany's December Harmonized Index of Consumer Prices (HICP), the ECB Monetary Policy Meeting Accounts, and broader market sentiment around the UK macro data will determine the EUR/GBP's trajectory in the upcoming sessions.

GBP/USD Muted by mixed UK macro data

GBP/USD edges lower near 1.2208 as lower-than-expected inflation data and modest GDP data soften the pound. UK CPI increased by 2.5% in December, down from 2.6%, while annual core CPI expanded by 3.2% in December. Monthly GDP came in at 0.1% in November, following a decline of 0.1% in October. Meanwhile, the Index of services (October) came in at 0% 3M/3M versus October's 0.1%. The UK's Goods Trade Balance recorded a deficit of GBP 19.311 MoM in the same period vs. GBP -17.9 billion expected and GBP -19.327 billion previously.

On the USD front, cooler-than-expected US Consumer Price Index (CPI) inflation figures provoked interest rate speculations from the Fed, declining the dollar. The US CPI rose 2.9% YoY in December, up from 2.7% in November, aligning with forecasts. Monthly CPI increased by 0.4%, while Core CPI grew 3.2% YoY, slightly below November's 3.3% and expectations. Core CPI rose 0.2% MoM in December. Investors will closely monitor the US economic docket – featuring monthly Retail Sales, the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for a fresh direction for the GBP/USD exchange rate.

EUR/USD struggles on dovish ECB sentiment

EUR/USD fluctuates near 1.0293 as a weaker Eurozone economic outlook raises market expectations of further policy easing from the ECB, adding downward pressure on the euro. Recent remarks from ECB policymaker and Bank of Finland Governor Olli Rehn suggest that he expects monetary policy to move out of restrictive territory within the next few months, potentially by 'midsummer'. Conversely, raising speculation that the Fed will implement two interest rate cuts this year dampens the USD. US CPI climbed 2.9% year-over-year in December, rising from 2.7% in November and meeting market expectations.

On a monthly basis, CPI increased by 0.4%, following November's 0.3% gain. Core CPI, excluding food and energy, grew 3.2% annually, slightly below November's 3.3% and analysts' forecasts of 3.3%. Month-over-month, Core CPI edged up by 0.2% in December 2024. In today's season, Germany's HICP for December, the ECB Monetary Policy Meeting Accounts, US Retail Sales for December and weekly Initial Jobless Claims will significantly influence the EUR/USD exchange rate.

GBP/JPY wobbles following UK economic figures

GBP/JPY hovers near 190.20 as the Japanese Yen gains strength, supported by Japanese Government Bonds reaching multi-year highs. BOJ Governor Kazuo Ueda hinted at an interest rate hike if economic improvements and price conditions persist, appreciating the yen. However, Japan's Finance Minister, Katsunobu Kato, expressed concern on Wednesday over the fluctuating yen due to foreign exchange movements. In contrast, growing expectations of rate cuts by the Bank of England (BoE) could add selling pressure on the pound.

The UK economy expanded by 0.1% in November, rebounding from October's 0.1% contraction but missing the 0.2% growth forecast. The Index of Services stagnated at 0% 3M/3M, unchanged from October's reading. Meanwhile, November's Industrial Production fell by 0.4% and Manufacturing Production dropped by 0.3%, both underperforming market expectations. The broader market sentiment around the UK's economic figures will drive the GBP/JPY exchange rate.

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