British Pound 1 Cent Lower As Market Reprices BOE Rate Cut Odd for December
GBPUSD turned higher after testing the 1.26 zone twice and gained 1 cent, as GBP traders were anticipating a hot CPI inflation report from the UK.
The GBP/USD pair has experienced significant volatility recently, influenced by weak UK economic data and hawkish commentary from the Federal Reserve. Last week, the pair dropped below the 1.26 level as sellers pushed it lower. However, support near 1.26 held firm, preventing further losses, and the price managed to rebound by a cent.
GBP/USD Chart Daily – Still Hanging at the 200 SMA
Yesterday, the downward pressure resumed during the European session amid heightened geopolitical tensions following reports of a long-range missile attack by Ukraine on Russia. Despite initial concerns, the situation did not escalate into a broader conflict, leading to an improvement in market sentiment. This allowed the GBP/USD to recover over a cent, climbing to resistance around 1.2690.
Bank of England Hearings
Yesterday the Bank of England expressed cautious optimism about inflation easing faster than expected in the hearings, though uncertainties persist regarding future trends and ongoing wage pressures. Officials indicated that gradual rate cuts totaling approximately 100 basis points over the next year would be appropriate, aligning with market expectations but dependent on incoming economic data.
Key areas of focus include services inflation and labor market dynamics, particularly how businesses respond to rising employment costs, which could shape broader economic policies. While the shift toward quantitative tightening signals a move toward greater stability, quantitative easing remains an essential tool for addressing potential crises when necessary.
UK CPI Inflation Report for October
- Headline CPI (October):
- Year-over-year inflation came in at +2.3%, slightly above the +2.2% expected.
- Marked an increase from the +1.7% recorded in September.
- Core CPI (October):
- Year-over-year core inflation rose to +3.3%, exceeding expectations of +3.1%.
- Higher than the previous month’s +3.2%, indicating persistent price pressures in non-volatile categories like services and goods.
Core prices rose by 0.4% and consumer prices increased by 0.6% for the month, both exceeding expectations of 0.3% and 0.5%, respectively. Despite this, attention remains on core annual inflation, which came in higher than both the September figure and forecasts. These developments strongly suggest that the Bank of England will likely hold the bank rate steady at its current level for the upcoming month.
GBP/USD Live Chart
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