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Feb 01 - 11:55 AM

GBP/USD - COMMENT-After BoE, Speed Of UK Inflation Retreat Remains A Risk For Sterling

By Paul Spirgel  —  Feb 01 - 10:20 AM

Though the BoE and Fed eliminated their policy bias toward hikes, GBP/USD remains supported in this year's 1.2597-1.2788, but the reduction of UK inflation is also proceeding ahead of the British central bank's schedule, which could increase downward pressure on the pound.

GBP/USD took the BoE's less-hawkish bias and 3-way vote split in stride on Thursday, falling to 1.2625 then rallying slightly to 1.2664.

The pound derived support from a rise in Challenger layoffs and initial jobless claims, which suppressed Fed rate expectations.

Even as the fight against inflation continues in the U.S. and UK, Fed rate expectations on LSEG's IRPR page for 2024 remain a touch lower than the BoE, providing support for cable.

That reflects the slightly greater reduction in U.S. inflation, though UK futures have shifted lower, with full-year BoE cuts now priced at -107bp by the December MPC meeting, down from -97bp prior to Thursday's rate hold.

Though still well-above target, the decline in UK inflation has exceeded BoE forecasts, a trend that could lead markets to expect earlier rate cuts than currently discounted by futures.
Any shift in sentiment toward that notion could result in tests of the 2024 low at 1.2597 and the 200-DMA by 1.2563.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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