UK inflation on path to 2%

Yesterday's currency recap

USD slid further as political risk took centre stage, after a Danish pension fund said it plans to exit US Treasuries by month's end, citing growing credit concerns linked to Trump’s policy agenda. USD weakness was compounded by fresh Trump threats of tariffs on Europe, including a potential 200% levy on French wine, and renewed tension over Greenland.

While some see the Treasury sell-off as isolated for now, markets are clearly becoming more sensitive to US political risk, with investors increasingly questioning whether this is an early warning sign of broader diversification away from US assets if rhetoric continues to escalate.

Today's GBP rates

What we think

UK inflation ticked higher in December, with headline CPI rising to 3.4% and services inflation edging up to 4.5%, largely driven by volatile items such as airfares. Despite the near-term uptick, the broader trend still points to inflation falling back toward the 2% target this year. That said, underlying price pressures are easing only gradually and inflation expectations remain sticky. As a result, the central bank is likely to stick with a cautious, gradual easing path. Markets continue to price in the next rate cut in either April or June with an additional cut towards the end of the year.

No data for the rest of the day but we wait to hear Trump's special address at Davos and thus remain alert to the implications of his comments. Markets are a bit calmer today after Trump hinted at the possibility of some form of agreement with the EU over Greenland.

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