Pound Sterling (USD) is on the defensive as UK December CPI shows mixed signals, with core inflation steady and services inflation slightly below expectations, BBH FX analysts report.

BOE rate cuts priced in, GBP faces headwinds

"GBP is trading on the defensive against USD and EUR. UK December CPI inflation was mixed. Headline CPI rose to 3.4% y/y vs. 3.2% in November, which was one tick higher than consensus (3.3%) but one tick less than the BOE’s forecast (3.5%). Core CPI unexpectedly printed at 3.2% y/y (consensus: 3.3%) for a second consecutive month while services CPI increased less than expected to 4.5% y/y (consensus: 4.6%) vs. 4.4% in November."

"Overall, persistently above target UK inflation suggests the Bank of England (BOE) can afford to wait before resuming easing. The swaps curve price-in over 80% odds the BOE delivers a total of 50bps of rate cuts to 3.25% over the next twelve months which is a headwind for GBP."