Sterling fell against the US Dollar, but managed to retain its value against the single currency in a day that was marked by the release of data regarding the UK’s inflation. The Office for National Statistics (ONS) published a report which showed that inflation in December stood at 3.0%, lower than the 3.1% November figure. Traders preferred to sell the Pound since the lowest inflation reading in the last six months may delay the next interest rate hike by the Bank of England (BoE).

The President of the European Council (EC), Donald Tusk, said in France that the EU27 are united in the negotiations with Great Britain. Tusk noted that the hardest part of Brexit talks lies ahead and that the European Union is still open to any discussion that would include the UK remaining in the bloc. The Euro recorded losses when a media report by Spiegel said that the SPD’s Berlin section voted against talks on forming a coalition government with Angela Merkel’s Christian Democrats.

Pound Sterling – UK Markets

Today, the Pound dipped against the US Dollar with the exchange rate set at $1.37. Sterling retained its value against the Euro with the exchange rate set at €1.12. The most important data release of the day regarding the UK’s economy was December’s inflation reading.

A report published by the ONS showed that inflation in the UK, during the last month of 2016, stood at 3.0% on an annualised basis. The figure was in line with City economists’ expectations. This is the first time that the inflation rate declined in the last six months. In November, inflation had hit a six-year high coming in at 3.1%. The report noted that inflation declined mainly because of air fares and lower prices of recreational goods such as games and toys.

Economists noted that inflation’s drop shows that the impact of the Pound’s depreciation, that started after the Brexit vote, has started to fade. They also suggest that UK’s inflation seems to have reached a peak, adding that they expect it to fall to 2.5% during Spring. However, they stress that with real wage growth being still weak, UK households would have to continue to deal with the pressure on their budgets.

US Dollar – US Markets

The US Dollar rallied against the Euro with the exchange rate set at €0.81. The US Dollar index (DXY), which measures the strength of the Dollar against six major currencies, remained stable, coming in at 90.49. There are no significant economic data releases coming from the US today.

UBS, one of the largest Swiss banks, praised US President Donald Trump for his economic policies. Mike Ryan, who is a UBS Wealth Management chief investment officer said that Trump’s efforts in making the US a more business-friendly economy are often under-appreciated. Ryan noted that, before the tax reform, the US tax code was inefficient and that heavy banking regulations were affecting investors’ confidence.

Jamie Dimon, the CEO of JP Morgan Chase, said in an interview on Fox Business network that he would retract his comment about Donald Trump serving only one term. Dimon told reporters that “I wish I hadn’t said it, I was talking probabilistically.” Dimon added that Democrats don’t seem to have suitable candidates for the 2020 presidential election. JP Morgan Chase’s CEO denied that he could be himself a presidential candidate and talked in favour of President Trump’s tax reform.

Euro – European Markets

The Euro dropped against the US Dollar with the exchange rate set at $1.22. The single currency’s value decreased when media reports said that talks on forming a coalition government in Germany broke down.

A Spiegel report said that Berlin’s SPD section rejected the proposal of coalition talks to form a government with Angela Merkel’s Christian Democrats. During the weekend, the regional branch of the SPD in the state of Saxony-Anhalt voted not to support the talks. Martin Schulz, the SPD’s leader, had said yesterday that he was confident that the majority of his party’s members would vote in favour of talks with Merkel’s conservative party.

A Destatis report revealed that German inflation in December stood at 1.7%, on an annualised basis. The figure was in line with analysts’ expectations. Wholesale prices increased by 1.8% in the last month of 2016, on an annualised basis. In Italy, inflation in December came in at 0.9%, on a year-to-year basis, as analysts had anticipated.

Other Currencies – Highlights

Sterling remained stable against the Australian Dollar, trading at 1.73 AUD. The Australian Bureau of Statistics (ABS) published data regarding new motor vehicle sales. Data showed that, during December, vehicle sales increased by 4.5% on a month-to-month basis. On an annualised basis, new motor vehicle sales rose by 6.7% in the last month of 2016.

The Pound rallied against the New Zealand Dollar, trading at 1.89 NZD. A survey by Statistics New Zealand showed that electronic card retail sales increased by 3.3% in December, on a year-to-year basis. Retail sales with the use of electronic cards rose by 0.5% in December, on a month-to-month basis. This was the fourth consecutive monthly rise in retail card spending.

Sterling remained stable against the Canadian Dollar, trading at 1.71 CAD. Analysts at ING forecast that the Bank of Canada will hike its benchmark interest rate by 0.25% in its board meeting later this week.