The pound tumbled after softer-than-expected UK inflation data emboldened investors to bet on more aggressive interest-rate cuts from the Bank of England.
Sterling slid 0.6% to $1.2990, its lowest level since Aug. 20. UK consumer prices were unchanged for September and the headline inflation rate dipped sharply to 1.7% from 2.2% previously. This was below consensus forecasts of 1.9% and the lowest reading since April 2021.
The weaker than expected inflation rate and services-sector slide will make a November Bank of England rate cut certain. Traders are now betting on back-to-back rate cuts at the BOE’s November and December decisions, having previously favoured only one cut.
Sterling has weakened over 3% from a two-year high touched in September against the greenback, paring a world-beating rally this year fuelled by bets the BOE would cut rates more cautiously than peers. The latest data casts further doubt over that narrative as price pressures ease, denting the currency’s appeal.
For months, the expectation was that the UK central bank would trail peers in cutting interest rates. But Governor Andrew Bailey earlier this month told the Guardian newspaper the BOE could become a “bit more aggressive” and “a bit more activist” in its approach to cutting rates, spurring sharp losses in the currency.
Looking at the Euro, with no real significant data scheduled for today, attention will turn to a speech by European Central Bank (ECB) President Christine Lagarde.
With the central bank’s next interest rate decision just two days away, any dovish remarks from Lagarde could bolster expectations of a rate cut, potentially weighing on the Euro.
GBP/EUR 1.1939 GBP/USD 1.2988 GBP/AED 4.7704
GBP/AUD 1.9429 GBP/CHF1.1195 GBP/CAD 1.7913
GBP/NZD 2.1335 EUR/USD1.0878 GBP/ZAR 22.802