European session review: GBP recovers as traders await cues on BoE interest rate cut

GBP rose slightly in the European session on Thursday as market participants paused the growing of bets on the Bank of England (BoE) lowering interest rates in January.

The pound tumbled earlier this week after another BoE's MPC member said he would vote for a rate cut unless the UK's economic data improved noticeably. Weaker inflation data, which were released on Wednesday, also added to the currency's woes.

Traders are now pricing in a nearly 57 percent chance of a 25 bps rate cut later this month compared to more than 60 percent on Wednesday.

Investors are awaiting the release of the December retail sales data due on Friday as well as the statistics on PMIs next week. It is expected that evidences that the UK's economy failed to improve after the general election that was held in December are to increase odds of a rate cut and knock the pound lower.

The euro traded mixed against its major counterparts after the release of the European Central Bank's (ECB) accounts of its December monetary policy meeting.

Meanwhile, the release of German final inflation data for December had little impact on the euro. Federal Statistical Office (Destatis) reported Germany's consumer price index rose by 0.5 percent in December 2019 compared with November 20 19. The gain was largely attributable to the seasonally higher prices of package holidays (+21.1 percent). Compared to December 2018, consumer prices as a whole were up 1.5%., pointing to an acceleration of inflation at the end of the year (November and October 2019: +1.1% each).

Reaction in currencies to the U.S.-China trade deal remained muted. As part of the deal, China agreed to purchase $200 billion worth of U.S. goods over the next two years, including up to $50 billion worth of agricultural products. The agreement also purportedly addresses issues such as intellectual property (IP) theft, forced technology transfers and currency manipulation by China. In exchange, the U.S. will cancel a new round of tariffs and lower already-imposed tariffs on approximately $120 billion worth of China's goods in half (to 7.5 percent). The U.S. president Donald Trump said that a 25 percent tariff on $250 billion worth of Chinese imports will remain in place in order to give the U.S. leverage as the two countries enter into phase-two talks.