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Dec 01 - 11:55 AM

GBP/USD - COMMENT-Sterling Plunge Proves Transitory As Markets Await Fed Clarity

By Paul Spirgel  —  Dec 01 - 10:13 AM

Sterling rose 0.33% to 1.3340 in early NorAm, clawing back some of Tuesday's post-Powell drop as markets took a less dire view of the draw-down in stimulus while also preparing for Friday's U.S. payrolls data.

Beyond that is the Fed's Dec. 15 meeting, which will show how willing policymakers are to accelerate tapering.

In the interim, price action indicated a risk recovery.
U.S. 5-year Treasury spreads slipped from Tuesday's wides versus Gilts and other sovereign bonds.

Whether inflation in the U.S. proves transitory or not, it is expected to remain well above target in the near-term, and as such the Fed is mandated to address it.

Policymakers are likely to seek the maximize their options before committing to draconian inflation-fighting measures that could risk derailing the burgeoning U.S. and global recovery.

This tempered view of the transitory walk-back is helping lift recently beaten down currencies versus the USD.

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Source:
Refinitiv IFR Research/Market Commentary

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