Pound Sterling slumps after MPC hearings, fresh Russia-Ukraine tensions
|- The Pound Sterling weakens after the Monetary Policy Hearing and renewed geopolitical tensions.
- The BoE reduced interest rates on November 7 as disinflation was faster than projected.
- Nomura expects the Fed to leave interest rates unchanged in December.
The Pound Sterling (GBP) declines against its major peers on Tuesday after Monetary Policy Hearings in which several Bank of England (BoE) policymakers – including Governor Andrew Bailey – responded to questions before the Treasury Select Committee regarding the latest decisions on interest rates.
The British currency weakens across the board as Andrew Bailey commented that the pace of disinflation was faster than expected, which allowed them to cut interest rates by 25 basis points (bps) to 4.75% in the policy meeting on November 7. However, Bailey and other policymakers showed concerns over upside risks to inflation remaining persistent. "Services inflation is still above a level that's compatible with on-target inflation," Andrew Bailey said. BoE external member Catherine Mann, an outspoken hawk, said, "Financial markets' inflation expectations suggest the BoE will not get to sustainable 2% inflation in the forecast horizon."
Selling pressure in the Pound Sterling has also been prompted by a fresh escalation in the Russia-Ukraine war after Kyiv launched United States (US)-supplied missiles in the Russian region. Before that, Russia updated its nuclear doctrine, a move that gives them the right to use nuclear weapons against a critical threat to their sovereignty, as a retaliation to the supply of ATACMS missiles by Washington to Ukraine, which renewed fears of a fresh escalation in geopolitical tensions.
For more cues on interest rate outlook, investors will pay close attention to the Consumer Price Index (CPI) data for October, which will be published on Wednesday. The inflation data will significantly influence market expectations for the BoE interest rate decision in the December meeting.
Traders see a roughly 80% that the BoE will cut interest rates again by 25 basis points (bps) to 4.50%, according to Reuters. This would be the second interest rate cut by the BoE in a row and the third in this year.
The headline CPI is expected to rise by 0.5% after remaining flat in September on month. Annual headline inflation is estimated to have accelerated to 2.2% from the prior release of 1.7%. Economists expect the core CPI – which excludes volatile food and energy prices – to grow steadily by 3.2%.
Investors will also pay close attention to the service inflation data, a measure closely tracked by BoE officials when deciding on interest rates.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | 0.29% | -0.51% | 0.03% | 0.14% | 0.12% | -0.05% | |
| EUR | -0.28% | 0.01% | -0.76% | -0.25% | -0.14% | -0.15% | -0.33% | |
| GBP | -0.29% | -0.01% | -0.78% | -0.27% | -0.15% | -0.17% | -0.33% | |
| JPY | 0.51% | 0.76% | 0.78% | 0.56% | 0.67% | 0.65% | 0.48% | |
| CAD | -0.03% | 0.25% | 0.27% | -0.56% | 0.11% | 0.09% | -0.07% | |
| AUD | -0.14% | 0.14% | 0.15% | -0.67% | -0.11% | -0.02% | -0.16% | |
| NZD | -0.12% | 0.15% | 0.17% | -0.65% | -0.09% | 0.02% | -0.17% | |
| CHF | 0.05% | 0.33% | 0.33% | -0.48% | 0.07% | 0.16% | 0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily digest market movers: Pound Sterling retreats against US Dollar
- The Pound Sterling fails to hold onto Monday’s recovery against the US Dollar (USD) and falls back in London trading hours on Tuesday. The GBP/USD pair retreats after as the US Dollar bounces back after fresh escalation in geopolitical tensions, which improved demand for safe-haven assets. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, rebounds from 106.10 and aimd to recapture the annual high of 107.00.
- The near-term outlook of the US Dollar remains firm as market participants expect the economic agenda of President-elected Donald Trump to boost inflationary pressures and prompt economic growth, a scenario that will lead the Federal Reserve (Fed) to deliver fewer interest rate cuts.
- Trump’s victory in both US houses (the Senate and the House and Representatives) and better-than-expected monthly Retail Sales data for October have led traders to pare back bets of an interest rate cut in the December meeting. The probability for the Fed to reduce interest rates by 25 bps to 4.25%-4.50% has diminished to 58.4% from 77% a month ago.
- Global brokerage firm Nomura expects the Fed to pause the policy-easing cycle in December. "We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” analysts at Nomura said. Nomura expects the Fed to cut interest rates by 25 bps in March and June meetings next year.
Technical Analysis: Pound Sterling struggles to hold six-month low of 1.2600
The Pound Sterling struggles to hold ground near 1.2600 against the US Dollar after discovering some buying interest. More broadly, the GBP/USD pair remains under pressure as it trades well below the 200-day Exponential Moving Average (EMA) at around 1.2850.
The 14-day Relative Strength Index (RSI) stays near 30.00, suggesting a strong bearish momentum.
Looking down, the psychological support of 1.2500 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 200-day EMA.
Economic Indicator
Core Consumer Price Index (YoY)
The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.Next release: Wed Nov 20, 2024 07:00
Frequency: Monthly
Consensus: 3.2%
Previous: 3.2%
Source: Office for National Statistics
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
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