GBP/USD recovers near 1.2230 as softer-than-anticipated PPI figures dampen the Dollar. US PPI for final demand climbed to 0.2% MoM from 0.4% advance in November, slightly below the expected 0.3%. On a yearly basis, PPI increased to 3.3% YoY from 3.0% in November, duller than the consensus of 3.4%. Friday's robust US Nonfarm Payrolls report tempered expectations that the Fed will pause its rate-cutting cycle at its January policy meeting, as the unemployment rate unexpectedly dropped to 4.1% from 4.2% in November. Meanwhile, the pound continues to underperform as rising borrowing costs have sparked worries about the UK's financial health.

Rising concerns that elevated interest payments may prompt the government to increase taxation or reduce public expenditure, adversely affecting the economic forecast. Annual headline inflation rose to 2.5% compared to 2.6% in November, while core PPI accelerated to 3.2% YoY, compared to 3.5%. In today's session, the Consumer Price Index (CPI) data from the UK and the US will significantly influence the GBP/USD's trajectory.

GBP/JPY Muted Following Soft UK Inflation Data

GBP/JPY struggles near 191.78 as weaker-than-expected inflation data softens the pound. The UK Consumer Price Index grew by 2.5% yearly, falling below 2.6% in November and forecasted at 2.7%. Annual core CPI, excluding volatile food and energy items, increased by 3.2% in December, significantly lower than the 3.5% increase in November and market expectations of 3.4%, while services inflation fell sharply to 4.4% YoY in December, down from 5% in November.

On the other hand, remarks from Bank of Japan (BoJ) Governor Kazuo Ueda indicate that the bank will raise interest rates and adjust the degree of monetary support if improvements in the economy and price conditions persist, appreciating the yen. Japan's Finance Minister, Katsunobu Kato, expressed concern on Wednesday over foreign exchange movements, particularly those influenced by speculators, affirming that appropriate actions will be taken to address excessive market volatility. In the absence of key economic data from Japan, broader market sentiment around the UK inflation numbers will drive the GBP/JPY exchange rate.

EUR/GBP Subdued by UK CPI Data

EUR/GBP hovers near 0.8438 as the euro faces additional downward pressure, with European Central Bank (ECB) officials continuing to fuel market expectations for further policy easing, influenced by a weak economic outlook in the Eurozone. In today's speech, ECB Vice President Luis de Guindos reaffirmed, "If incoming data confirms our baseline, we can expect further rate cuts." Chief Economist Phillip Lane cited that the economy is still recovering; substantial employment and wage growth are expected.

At the same time, downbeat UK CPI inflation data adds selling pressure on the pound. Annual CPI printed at 2.5%, while core CPI, excluding volatile food and energy items, accelerated to 3.2% year-on-year. Monthly UK CPI inflation climbed to 0.3%, and services inflation dropped sharply to 4.4% YoY in December compared to 5% in November. While the unexpected easing of inflation calms concerns over government borrowing costs, the firming market sentiment on further interest rate cut bets is capping GBP's upside potential.

USD/CAD Weakens Due to Disappointing US Inflation Data

USD/CAD loses momentum near 1.4345 due to a softer USD after cooler-than-expected PPI inflation data. The PPI for final demand increased 0.2% MoM in December from a 0.4% advance in November, below the expected 0.3%. The PPI climbed 3.3% YoY in December, marking the highest increase since February 2023, up from 3.0% in November but slightly below the 3.4% consensus forecast. The CPI figures are expected to rise 0.2%, compared to 0.3% in November, while the headline figure is projected to increase steadily by 0.3%.

Annually, core CPI is anticipated to hold at 3.3%, with headline inflation accelerating to 2.9% from 2.7% previously. On the loonie front, the gradual implementation of President-elect Donald Trump's proposed import tariffs has eased concerns for Canadian exporters, supporting the CAD. Stronger-than-expected Canadian labour market data for December, higher crude oil prices, and hawkish expectations for the Bank of Canada (BoC) will strengthen the Canadian Dollar (CAD). In today's session, US CPI inflation data and addresses by influential FOMC Members will influence the USD/CAD's movements.

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