Sterling Falls as UK Inflation Stays at 6.7%
Sterling has experienced a decline as traders maintained a risk-averse stance and processed data from Tuesday, which revealed that UK inflation unexpectedly remained at 6.7% in September. This has raised the possibility of another increase in interest rates. At 0851 GMT, the pound was down 0.3% against the dollar to $1.2106, and it also fell by the same amount against the euro, at 87.03 pence.
Nicholas Rees, an FX market analyst at Monex Europe, stated that “Sterling has been trading with its typical high beta to global risk conditions in recent days.” He added that concerns about a potential spike in energy prices, stemming from the Middle East crisis, have put pressure on the pound this morning.
Traders are eagerly awaiting remarks from Federal Reserve Chair Jerome Powell at 1600 GMT. Fiona Cincotta, a senior financial markets analyst at City Index, said that “Sterling is falling for a third straight day on dollar strength owing to haven flows, and as U.S. Treasury yields hit a 16-year high, the expectation is that the Federal Reserve will keep interest rates higher for longer.”
Concerns have also been focused on domestic data. Traders have been thoroughly examining wage data from Monday and inflation numbers from Tuesday. The unexpected consumer price figures, which were hotter than expected, followed data showing that growth in British workers’ regular salaries slowed down from a previous record high, while job vacancies also declined. These signs of a softer labor market have increased the chances that the Bank of England (BoE) will leave rates unchanged at its next meeting, while the inflation figures have had the opposite effect.
Monex’s Rees commented on the data, stating that “The modest undershoot on the wages data contrasted with a slight beat on inflation.” He further added, “All-in-all though, both show signs of slowing inflationary pressures and with BoE speakers having recently set a high bar for restarting rate hike in our view, we don’t think this round of data moves the needle for either the MPC of the pound.”
Money markets are currently indicating an 82% chance that the BoE will keep rates unchanged in its upcoming meeting in November. The UK retail sales for September are due to be released on Friday, while a preliminary read on October business activity is expected next week.
– Raitano, L. (2022, October 19). Sterling Falls as UK Inflation Stays at 6.7%. Retrieved from [source-link]
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