Moderation in UK Inflation pulls GBPUSD down

  • GBPUSD
    (${instrument.percentChange}%)

UK headline CPI printed at 3.9%, much lower than the previous print of 4.6%, and below the forecast of 4.3%. The decline is broad-based, and the Bank of England (BoE) will note the moderation in services inflation. This has fuelled speculation that the BoE will cut rates next year. In this regard, British bond yields declined on the inflation news.

We note that the spread between the 2-year British gilt and the US 2-year note gapped down (red arrow) on the decline, taking the GBPUSD lower (green trendline):

Source: www.tradingview.com

The BoE has recently pushed back against the market's expectation of rate cuts, maintaining that "key indicators of UK inflation persistence remain elevated." However, today's decline is certainly a step in the right direction and may suggest that the BoE is being too pessimistic.

The market now expects 140bps of cuts in 2024.

Trade the News: View our Economic Calendar

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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