GBP/USD Exchange Rate Nosedives amid Plunge in UK CPI
The Pound US Dollar (GBP/USD) exchange rate tumbled today, in response to a sharp cooling of UK Inflation.
At the time of writing the GBP/USD exchange rate is trading at around $1.2661. Down roughly 0.6% across today’s European session.
Pound (GBP) Slumped as CPI Falls
The pound (GBP) is on the back foot against its peers today, after UK inflation printed well below market expectations.
The latest UK consumer price index pointed to a stark drop in UK inflation last month.
Headline inflation fell from 4.6% to 3.9% in November, missing market forecasts of a smaller reduction to only 4.4%. Core inflation fell more than forecast, slumping from 5.7% to 5.1% last month.
The surprisingly sharp decline in inflation has been linked to a dramatic drop in fuel prices, as well as a fall in food and household goods prices.
The underwhelming inflation release weighed heavily on the Pound today as it stoked speculation on when the Bank of England (BoE) will begin cutting interest rates in 2024.
Samuel Tombs, at Pantheon Macroeconomics, commented:
‘November’s surprisingly sharp fall in CPI inflation reinforces the likelihood that the [BoE’s] Monetary Policy Committee will begin to reduce the Bank Rate in the first half of 2024, far earlier than it has been prepared to signal so far.’
In the run up to Christmas, the UK will publish its latest retail sales data.
With markets predicting a rise in sales growth from -0.3% to 0.4%, could this help the Pound to mount a recovery?
US Dollar (USD) to Stumble if Inflation Slowdown Stokes Fed Rate Cut Bets
The US Dollar (USD) is trading sideways today, as a cautious market mood helps the currency to claw back some of its recent losses.
However, this upside in USD exchange rates may prove short lived, as Friday sees the release of the Federal Reserve’s preferred measure of inflation, the core PCE price index.
November’s index is expected to report US inflation fell from 3.5% to 3.3% in November.
The continued fall in inflation is likely to reaffirm Fed rate cut bets ahead of the holiday period and could place significant pressure on the US Dollar.
In the meantime, the release of USA’s final GDP estimate for the third quarter is scheduled for release. The figures are expected to confirm the US economy expanded by a solid 5.2%, which could lend the US Dollar some support.
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