The financial markets experienced heightened volatility on Wednesday as traders eagerly awaited the December Consumer Price Index (CPI) data from the United States, which is expected to significantly influence American trading. In European trading hours, the EUR/USD pair maintained its position near 1.0300, supported by a subdued US Dollar that counteracted dovish commentary from the European Central Bank (ECB). Meanwhile, the GBP/USD pair extended its recovery, rising above 1.2200 in the European session, despite a surprise cooldown in UK inflation.
The UK's December CPI inflation rate dropped to 2.5% year-over-year, falling short of the anticipated 2.7%. This unexpected decline in inflation did not deter the Pound Sterling's recovery, as positive contributions to production in November signaled some resilience in the UK's economic landscape. Across the eurozone, industrial production posted growth for the second consecutive month, with October's figures revised upward to a modest 0.2% increase. However, the overall industry continues to show limited signs of a sustained turnaround.
Germany's economy faced another setback as the annual GDP figures revealed a contraction in the fourth quarter of 2024. This disappointing performance underscores the challenges facing the eurozone's largest economy. Despite these headwinds, gold prices managed to recover initial weekly losses, edging higher for the second day in a row and trading in the $2,680s on Wednesday.
In the United States, market participants are cautiously predicting fewer interest rate cuts from the Federal Reserve this year. However, another hot inflation report could dramatically alter these expectations, potentially triggering significant movements in the US Dollar. The previous day's softer-than-expected Producer Price Index (PPI) release led to a notable easing in US yields, contributing to the subdued performance of the dollar.