The GBP/USD currency pair continued its downward trajectory on Thursday, trading near 1.2685 during Asian hours. A surge in the US Dollar, which hit its highest level since November 2023, is placing pressure on the major currency pair. Investors are now awaiting remarks from Bank of England (BoE) Governor Andrew Bailey later in the day for further market guidance.
US inflation data released Wednesday by the Department of Labor Statistics revealed that the Consumer Price Index (CPI) for October rose by 2.6% year-on-year, in line with expectations. The core CPI, which excludes volatile food and energy prices, increased by 3.3% year-on-year, also matching analyst projections. The data solidified expectations that the US Federal Reserve (Fed) is likely to proceed with further interest rate cuts at its next meeting in December.
Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, commented on the CPI data, stating, “There were no surprises in the inflation report, so the Fed should remain on track for a rate cut in December. However, the outlook for next year remains uncertain due to potential tariffs and other policy changes under the previous Trump administration.”
Despite the recent inflation data, Federal Reserve officials have expressed caution regarding further rate cuts. Dallas Fed President Lorie Logan emphasized the importance of proceeding cautiously to avoid inadvertently reigniting inflation, while St. Louis Fed President Alberto Musalem highlighted the challenge of “sticky” inflation, which complicates the central bank’s ability to ease rates further. As a result, markets are pricing in a slower pace of rate cuts, with expectations for another 0.25% reduction in December and more gradual cuts extending into mid-2025.
In the UK, Bank of England policymaker Catherine Mann noted that the impact of current monetary policy on inflation is being felt more rapidly than economic models anticipated, suggesting the BoE may be able to hold off on significant rate cuts. Currently, markets are pricing in just two 0.25% rate cuts by the end of 2025, which would put the BoE behind other major central banks in its tightening cycle.
Attention now turns to BoE Governor Andrew Bailey’s speech later today, as traders seek further clues about the central bank’s stance. A less dovish tone from Bailey could provide support for the British Pound, potentially limiting the pair’s decline against the US Dollar.
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