Weaker UK Inflation Leads to Weaker Pound – Europe Market Wrap

US Treasury bonds and equity futures indicated a recovery from the Wall Street slump on Tuesday, which was brought on by stronger-than-expected US inflation statistics, which increased speculation that the Fed could postpone its rate-cutting announcement.

Contracts on the S&P 500 rose 0.4% after the index’s worst inflation-day plunge since September 2022. Benchmark treasury yields retraced some of the previous day’s jump, but remained over 4.2% as traders reduced expectations on an early Fed rate cut.

US CPI data disappointed investors, pushing US stocks to a record and European peers to just short of one, on mounting hopes for imminent rate cuts. Fed swaps shifted full pricing of a rate cut to July from June after the data, and global bonds erased the last remnants of a rally that began in December.

Inflation in the United Kingdom was lower than expected in January, with underlying price pressures not rising as much as markets and the Bank of England feared. The pound reversed earlier gains after the data, while UK bonds rallied. The inflation data triggered a repricing in BoE rate bets, with traders resuming wagers on three quarter-point reductions this year.