GBP/USD trims daily advances as UK inflation misses target

The pound erased daily advances against the US dollar after data showed the UK inflation unexpectedly slowed its annual pace in December to the lowest level since November 2009.

Having reached a session high at 1.6448 at 09:27 GMT, GBP/USD trimmed daily advances to trade at 1.6399 at 10:23 GMT, adding 0.09% on a daily basis. Support was likely to be received at January 13th low, 1.6347, while resistance was to be encountered at January 13th high, 1.6508.

The pound came under selling pressure after a report by the UK Office for National Statistics. Data showed the annual consumer inflation rate, with its corresponding CPI declined to 2 percent in December, short of analysts projections of 2.1% increase in the previous month and down from Novembers reading of 2.1% annual rate. On a monthly basis, the inflation accelerated to 0.4% in December, but was short of analysts projections of 0.5% advance.

A separate report revealed the core CPI also declined to an annualized rate of 1.7% in December, after it increased by 1.8% in the previous month. Analysts had expected the core CPI to remain unchanged at 1.8%.

Meanwhile, yesterday, Federal Reserve Bank President for Atlanta Dennis Lockhart said that weaker-than-projected payroll data in December should not discourage central bank’s policy makers from scaling back monthly monetary stimulus as long as the economy continues to gain momentum. Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, are expected to take a statement later today.

The Census Bureau, part of the US Department of Commerce, will probably say that overall retail sales increased 0.1% in December on a monthly basis, after the indicator gained 0.7% in November, according to the median estimate of experts. Retail sales are considered as a crucial indicator regarding the trend in consumer spending and overall economic development in the United States. The official figures are scheduled for release at 13:30 GMT today and better than projected results would certainly provide support to US dollar’s demand.

Fed decided on December 18th to cut its monthly bond purchases by $10 billion to $75 billion, this month, citing improvements in the labor market. Fed Chairman Ben Bernanke said, regarding this decision, that Fed will probably continue to do a measured reduction in the pace of purchases at each meeting. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Fed’s stimulus in $10 billion increments over the next seven committee meetings.

Elsewhere, having reached a session high at 103.53 at 03:25 GMT, USD/JPY traded at 103.67 at 09:07 GMT, adding 0.66% for the day. Support was likely to be received at January 13th low, 102.86, also the pair’s lowest since December 18th, while resistance was to be encountered at January 13th high, 104.03.