Yesterday marked the GBP's most challenging day in a fortnight, as it succumbed to a surge in USD strength and disappointing nominal wage data. These factors caused the currency to dip below the support lines established in November and October of the previous year. However, the resilience exhibited in today's inflation data has prevented GBP/USD from falling below the 50-day moving average at $1.26, a level briefly touched just before the release of the Consumer Price Index (CPI). As of now, the currency pair is trading around $1.2630, maintaining its strength against non-dollar counterparts. GBP/AUD is particularly noteworthy, poised to register its tenth appreciation in eleven days, reflecting a 3.5% increase during this period. GBP's superior performance against the yen stands out, with a notable 4.3% surge since January 3rd.

Delving into the CPI figures, December witnessed the first uptick in inflation in the United Kingdom after a ten-month streak of disinflation. Consumer prices rose by 10 basis points year-over-year, reaching 4%, while core inflation remained elevated at 5.1%. The closely monitored services inflation also saw an increase from 6.2% to 6.4%, completing a trifecta of robust inflation prints. Although the December uptick in price pressures is not entirely favourable, much of the upward movement can be attributed to base effects. Despite this, our outlook anticipates a gradual decline in inflation over the upcoming months, aligning with the expectation that the Bank of England will initiate a monetary policy easing starting from May onwards.