The GBP/USD rate has experienced very high volatility over the past two days. Sterling briefly skyrocketed to a high of 1.2180s yesterday because of the better-than-expected labor market conditions. 

However, its position immediately slumped due to the greenback's appreciation in the same session. The pound sterling rate has depreciated further.

This was following the publication of UK inflation data last afternoon and US retail sales tonight. When the news was written at the beginning of the New York session (15/February), GBP/USD had already stepped on a one-week low of 1.1989.

The Office for National Statistics reported that prices in the United Kingdom posted a decline of -0.6% for month over month in January 2023. This figure is much weaker than the consensus estimate of -0.4%. 

Core CPI Experienced a Sharp Decline 

The core consumer price index fell even more sharply by -0.9% for month over month in the same period. The UK consumer price index currently features a real and sustained trend of disinflation for the third month in a row. 

The main inflation rate decreased from 10.5% to 10.1% on an annual basis. Meanwhile, the core inflation rate subsided from 6.3% to 5.8%. Market participants consider it a dovish signal.

It is especially for the policy of the Bank of England (BoE) going forward. As a result, the fall in British inflation data triggered a slump in the pound sterling exchange rate against various other currencies.

The EUR/GBP rate is sticking out for the first time in more than a week. GBP/JPY also slammed from the crucial resistance threshold of 162.00 for the fourth time since December. 

USD will Relatively Strong Again 

Weakness in core services inflation is a risk for the prediction for a 25 bps (BoE rate) hike in March. That becomes the analysts' baseline scenario due to forces in the labor market.

It was said by Abbas Khan, an economist at Barclays. The next round of inflation and labor market data, which will be released before the March (BoE) meeting, will be the key. 

The market is clearly likely to put a short position on the dollar for the first half of the year, said Erik Nelson, a Wells Fargo macro strategist. However, with CPI figures like this and recent activity data, it will be difficult for the dollar to continue to sell. 

He also think that the USD will remain relatively strong in the short term. Market participants are now looking forward to the release of the US retail sales report later in the evening.

Japan’s GDP for the Fourth Quarter has Been Released 

This was as well as producer inflation and other data sets that will be published tomorrow. The search for the next catalyst for the US dollar is still continuing.

Elsewhere, the American retail sales data provided a positive catalyst for the US dollar rate in New York session trading on Wednesday (15/February). The DXY skyrocketed about 0.75% to touch 104.06.

It became its strongest rate since early January. Elsewhere, The Japan Bureau of Statistics on Tuesday (14/February) released data on GDP for the fourth quarter of 2022.

That grew by 0.6 percent on an annual basis. Despite recovering from a 1.0 percent contraction in the previous quarter, GDP figures this time is below market expectations that forecast 2.0% growth.

Japanese Economy is Growing 

On a quarter-over-quarter basis, the Japanese economy was also lower than expectations (0.2 percent vs. 0.5 percent). Nevertheless, this achievement is still positive.

It is especially when you compared it to the previous quarter's figure of -0.3 percent. In general, the Japanese economy is growing and already showing a recovery. 

This condition was largely supported by the household consumption sector which increased by 0.5 percent. Unfortunately, the strengthening of GDP could not meet expectations due to high inflation.

It is especially which hampered the recovery of consumer spending. The capital expenditures fell 0.5 percent amid uncertainty over the global economic outlook.