- The GBP extended its gains towards 1.1790s after a soft US inflation report.
- The US Dollar plunges sharply, as shown by the US Dollar Index, down 1.20%, below the 107.000 mark.
- Consumer sentiment in the United States worsened as inflation expectations rose.
The Pound Sterling rises in the North American session, following a softer inflation report in the United States, which augmented speculations that the Federal Reserve might lift rates at a slower pace. Also, China’s Covid-19 restrictions were relaxed, a sign that could bolster the world’s second-largest economy. At the time of writing, the GBPUSD is trading at 1.1795., above its opening price by 0.65%.
Wall Street’s cling to Thursday gains, a reflection of an upbeat sentiment. The University of Michigan’s (UoM) Consumer Sentiment for November fell to a four-month low, from 59.5 to 54.7, while inflation expectations rose. Americans expected inflation in one-year would rise to 5.1%, and for five to 10 years, consumers foresee inflation peaking at 3%. Joanne Hsu, director of the survey, said, “Continued uncertainty over inflation expectations suggests that such entrenchment in the future is still possible.”
Aside from this, the latest US Consumer Price Index (CPI) report is still weighing on the US Dollar (USD), as headline CPI and core CPI for October fell below expectations. Therefore, speculations that the Federal Reserve would lift rates in smaller sizes increased. Reflection of that is the Fed CMEWatchTool showing traders expecting the Fed to hike rates by 50 bps in its December meeting, as chances lie at 85.4%, unchanged from Thursday.
Elsewhere, a slew of Federal Reserve officials commented that it was “appropriate” to slow the pace of interest-rate hikes. Nevertheless, most of them commented that the Fed is still tightening monetary policy, as the Dallas Fed President Lorie Logan said that “a slower pace should not be taken to represent easier policy.”
In the meantime, the US Dollar Index, a gauge of the buck’s value against a basket of peers, plunges more than 1%, below the 107.000 mark, for the first time since August 18, a tailwind for the GBPUSD.
Aside from this, on the UK front, the Gross Domestic Product (GDP) for Q3 shrank more than foreseen in September, indicating the beginning of a prolonged projected recession by the Bank of England (BoE). UK GDP fell 0.6% between August and September, more than the 0.4% contraction estimates by analysts.
The latest data would provide a rugged backdrop to the newest Chancellor, Jeremy Hunt, who is expected to tighten fiscal policy as the UK battles 40-year high inflationary pressures. Rishi Sunak’s budget is considering tax rises and cutting public spending up to GBP 55 Billion a year.
Of late, crossing newswires, the US Treasury Secretary and former Federal Reserve Chair Janet Yellen said October’s inflation reading was positive. Still, she cautioned that core CPI was lower, but shelter prices remain high.