GBP/USD extends losses as US inflation rises
The British pound continues to lose ground and is down for a fourth straight trading day. In the North American session, GBP/USD is trading at 1.2709, down 0.18% on the day. Earlier, the pound dropped below the 1.27 line for the first time since Aug. 8.
US inflation has been on a prolonged downswing but that streak has ended. After decelerating for six straight months, headline CPI for October rose to 2.6% y/y, up from 2.4% in September. The US dollar has responded with modest gains against the major currencies. Monthly, headline CPI was unchanged at 0.2%, in line with expectations. The core rate was unchanged in October, at 3.3% annually and 0.3% monthly, which matched expectations.
The jump in inflation may not have been a surprise, but market rate-cut odds have jumped sharply. Just a day ago, the markets had priced in a 58% probability of a cut in December, but this has surged to 82% currently, according to CME’s FedWatch.
Inflation is largely contained but by no means defeated. The Federal Reserve has waged a tough battle and is no mood to see inflation rebound. The next inflation report will be released just one week ahead of the Dec. 18 rate meeting and if inflation again moves higher, it’s possible that the Fed will respond with an oversized 50-basis point cut.
Another headache for the Federal Reserve could be the Trump election win, with the Republicans winning the Senate and likely the House of Representatives. The incoming Trump administration represents an upside risk to inflation, as President-elect Trump has promised sweeping tariffs on imports, notably China and Europe. If Trump makes good on his tariff threat, goods imported into the US will become more expensive which would boost inflation. That could complicate the Fed’s plans to continue trimming rates in 2025.
There is resistance at 1.2781 and 1.2843
1.2685 and 1.2683 are the next support levels
US inflation has been on a prolonged downswing but that streak has ended. After decelerating for six straight months, headline CPI for October rose to 2.6% y/y, up from 2.4% in September. The US dollar has responded with modest gains against the major currencies. Monthly, headline CPI was unchanged at 0.2%, in line with expectations. The core rate was unchanged in October, at 3.3% annually and 0.3% monthly, which matched expectations.
The jump in inflation may not have been a surprise, but market rate-cut odds have jumped sharply. Just a day ago, the markets had priced in a 58% probability of a cut in December, but this has surged to 82% currently, according to CME’s FedWatch.
Inflation is largely contained but by no means defeated. The Federal Reserve has waged a tough battle and is no mood to see inflation rebound. The next inflation report will be released just one week ahead of the Dec. 18 rate meeting and if inflation again moves higher, it’s possible that the Fed will respond with an oversized 50-basis point cut.
Another headache for the Federal Reserve could be the Trump election win, with the Republicans winning the Senate and likely the House of Representatives. The incoming Trump administration represents an upside risk to inflation, as President-elect Trump has promised sweeping tariffs on imports, notably China and Europe. If Trump makes good on his tariff threat, goods imported into the US will become more expensive which would boost inflation. That could complicate the Fed’s plans to continue trimming rates in 2025.
There is resistance at 1.2781 and 1.2843
1.2685 and 1.2683 are the next support levels
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