-
UK inflation falls to 3.9%, lower than expected.
-
British pound declines.
The British pound has declined on Wednesday. In the European session, GBP/USD is trading at 1.2658, down 0.58%.
UK inflation surprises on the downside
UK inflation was lower than expected in November and the surprising release has sent the British pound lower today. Headline CPI eased to 3.9% y/y, down from 4.6% in October and below the consensus estimate of 4.4%. This marked the lowest inflation rate since September 2021. Core CPI rose 5.1% in November, down from 5.7% and below the market consensus of 5.6%. Significantly, both the headline and core readings declined in November on a monthly basis – headline CPI came in at -0.2% and the core rate at -0.3% and both were lower than expected.
The sharp drop in inflation was driven by lower prices across the economy, including food, fuel, transport, recreation and clothing. The Bank of England will be encouraged by the significant decline in Core CPI, which excludes volatile items such as food and energy and is considered a better gauge of inflation trends than headline CPI.
It was just one week ago that the BoE paused rates but Governor Bailey remained hawkish at the meeting and pushed back against rate cut expectations. Bailey said that rates would remain in restrictive territory for an extended period (‘higher for longer’) and the pound reacted to his comments with sharp gains.
Will the soft inflation report change any minds at the BoE? The decline in inflation should put pressure on the BoE to cut rates next year. However, hawkish policy makers can point to Core CPI and argue that at a clip of 5.1%, it is nowhere near the Bank’s target of 2% and now is not the time to signal rate cuts are coming. It will be interesting to see how BoE officials react to the inflation report and whether the central bank adopts a less hawkish stance as a result.
GBP/USD technical
-
GBP/USD has breached support at 1.2711 and 1.2661. The next support level is 1.2590.
-
1.2782 and 1.2832 are the next resistance lines.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.