[vc_row][vc_column][vc_column_text]A weaker-than-expected UK consumer price index added to the odds of an imminent Bank of England (BoE) interest rate cut, keeping the pound on a soft footing.

Demand for the euro was dented by the latest evidence of a German economy slowdown, meanwhile, as 2019 saw a sharp slowdown in the annual growth rate.

Although the US economy showed some signs of weakness this was not enough to weigh down the US dollar thanks to a general uptick in market risk aversion.

As markets took little encouragement from the signing of the phase one US-China trade agreement this limited the potential for Australian and New Zealand dollar gains.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]The pound stumbled as investors were caught off guard by December’s UK consumer price index data, which showed a surprise softening of the headline inflation rate.

As inflation eased from 1.5% to 1.3% on the year this encouraged the odds of a January BoE interest rate cut to rise further, with the CPI falling further away from the central bank’s 2% target.

With policymakers already appearing prepared to ease monetary policy sooner rather than later this weak inflation reading left the pound under renewed pressure.

UK inflation miss drives BoE rate cut bets and pound weakness

Confidence in the economy could took further damage thanks to a surprise contraction in the latest UK retail sales figures, suggesting that domestic sentiment failed to bounce back in December.

Increasing fears over the prospect of a potential hard Brexit scenario also weighed heavily on GBP exchange rates this week.

Evidence of a slowdown in UK wage growth would give the BoE greater cause for cautiousness, putting additional pressure on the pound.

However, as the impact of a January interest rate cut has already been largely priced into GBP exchange rates the ultimate impact of weaker wage data could prove limited.

Another weak quarterly CBI business optimism index may help to keep the pound biased to the downside, though.[/vc_column_text][/vc_column][/vc_row]