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Apr 10 - 11:55 AM

GBP/USD - COMMENT-US Inflation Surprise Shifts Focus Back To Sterling Downside

By Paul Spirgel  —  Apr 10 - 10:00 AM

GBP/USD fell on Wednesday after above-forecast U.S. inflation data led investors to pare back Fed rate cut odds further, increasing the risk of a trek toward this year's low of 1.2518 if cable's probes of the 200-DMA at 1.2587 produce a downward break.

The market now projects only two Fed rate cuts in 2024, with chances of a move in June or July steadily diminishing.

The shift toward a September move is likely to keep GBP/USD on the back foot as UK and U.S. inflation and rate expectations diverge.

The data indicated persistent U.S. inflation with earnings +0.3%, above-forecast core CPI and a rise in the headline rate supporting recent hawkish comments by Fed policymakers.

The dovish turn in the vote distribution at the BoE's latest policy decision, when it held rates steady, and falling British inflation have softened UK rate expectations, moving up expected cuts from September to August, with a 50% chance for June.

Sterling traders' focus now shifts to UK CPI data to be released on April 17.

Should UK inflation continue its downward trajectory, dovish UK rate expectations are likely to intensify, brightening the spotlight on this year's low of 1.2518.

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Refinitiv IFR Research/Market Commentary


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