Sterling Falls as UK Inflation Remains High and Traders Stay Risk-Averse
Sterling experienced a drop on Wednesday as traders continued to be risk-averse and analyzed data from Tuesday that revealed UK inflation unexpectedly held steady at 6.7% in September. This unexpected figure has raised the possibility of another increase in interest rates.
At 0851 GMT, the pound was down 0.3% against the dollar at $1.2106, and it fell by the same amount against the euro at 87.03 pence.
Experts have noted that sterling has been trading in line with global risk conditions in recent days. Nicholas Rees, FX market analyst at Monex Europe, stated that concerns about a potential energy price spike resulting from the crisis in the Middle East have put pressure on the pound.
In addition, traders are anxiously awaiting remarks from Federal Reserve Chair Jerome Powell at 1600 GMT. Fiona Cincotta, senior financial markets analyst at City Index, highlighted that the pound is falling for a third consecutive day due to dollar strength and increased haven flows. The expectation is that the Federal Reserve will maintain higher interest rates for a longer period of time, especially since U.S. Treasury yields have reached a 16-year high.
Closer to home, traders are closely examining Monday’s wage data and Tuesday’s inflation numbers. The unexpectedly higher consumer price index followed data showing that growth in British workers’ regular pay had slowed, and job vacancies had declined.
The signs of a softer labor market have increased the likelihood that the Bank of England (BoE) will leave rates unchanged at its next meeting, while the inflation figures have had the opposite effect.
According to Rees, the slight undershoot on wages data, along with a slight beat on inflation, indicate signs of slowing inflationary pressures. He added, “With BoE speakers having recently set a high bar for restarting rate hikes, we don’t think this round of data moves the needle for either the MPC or the pound.”
Money markets are currently placing an 82% chance that the BoE will hold rates unchanged in its upcoming meeting in November.
Looking ahead, UK retail sales for September are scheduled to be released on Friday, while a preliminary read on October business activity will be available next week.
This article provides a balanced and objective account of the events surrounding the fall in sterling. It highlights various factors that have contributed to the pound’s decline, including global risk conditions, concerns about energy prices, and the anticipation of remarks from the Federal Reserve Chair. The article also explains how recent wage and inflation data have influenced traders’ expectations and the likelihood of the Bank of England keeping rates unchanged. The inclusion of quotes from industry experts adds credibility and context to the information presented.
More detail via Reuters here… ( Image via Reuters )