British inflation sends pound briefly below $1.30

Pound Sterling fell to its lowest level in two months on Wednesday (16 October) after weaker-than-expected British inflation data provided room for the Bank of England to cut rates more sharply, while the euro was at the lowest level in 10 weeks ahead of a European Central Bank meeting.

The pound fell to $1.2984, falling below the $1.30 level for the first time since August 20, after data showed the annual consumer price inflation rate fell to 1.7% in September. of 2.2% in August.

That was the lowest figure since April 2021, falling short of the 1.9 percent predicted by a Reuters poll of economists. It reinforced bets on a BOE interest rate cut next month and made a new cut in December more likely.

Sterling regained some ground in morning trade in Europe and was down 0.42% on the day at $1.3018.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the remaining two meetings this year,” said Francesco Pesole, currency strategist at ING.

“We think this has opened the door to a period of sterling underperformance,” he said, adding that they see the pound trading well below $1.30 and the euro above 84 pence.

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The common currency was up 0.44% against the pound at 83.67 pence.

Moves elsewhere were less dramatic, but the euro was at $1.0891, steady on the day but stuck at its lowest level since Aug. 2, having been hurt by traders pricing in rate cuts from the Federal Reserve and including a potential election victory for former President Donald Trump. Trump – seen as a positive dollar – in his thinking.

Investors will be closely watching the European Central Bank meeting on Thursday, although if policymakers present the current 25 basis point cut and President Christine Lagarde refrains from giving too many hints about the future outlook for rates, the impact on the market could be mitigated.

Across the Atlantic, traders have set odds of 92 percent for a 25 basis point cut when the Fed decides its next policy on Nov. 7, with an 8 percent probability of no change, according to the tool. CME Group FedWatch. A month ago, investors were seeing better than 29% odds of a whopping 50 basis point drawdown.

Market prices still strongly favor a full 50 basis points of easing this year, but comments from central bankers overnight were more aggressive. Raphael Bostic of the Atlanta Fed said he only planned a 25 basis point rate cut for this year, while Mary Daly of the San Francisco Fed said “one or two” cuts in 2024 would be “reasonable.”

The dollar rose 0.1% to 149.37 yen, not far from Monday’s high of 149.98 yen, the strongest since August 1.

BOJ board member Seiji Adachi said on Wednesday the central bank should raise rates at a “very moderate” pace and avoid premature hikes, given uncertainties about the global economic outlook and domestic wage developments.

The Australian and New Zealand dollars fell as skepticism grew over stimulus from top trading partner China.

The Aussie fell as much as 0.51% to $0.6669, the lowest level since September 12, before recovering to $0.6684, while the Kiwi fell as much as 0.69% to $0. .6041, level last seen on August 19.

“There has definitely been some growing skepticism about China’s real commitment to the kind of fiscal support that would be seen as really cathartic,” and which is dragging down the Australian and New Zealand currencies this week, said Ray Attrill, head of National’s foreign exchange strategy. Bank of Australia.

New Zealand’s currency was also further pressured by data showing cooling inflation, keeping the door open for aggressive easing by the central bank. REUTERS