Sterling slips as U.S. inflation data, Waller comments lift dollar
Currency markets are refocusing on U.S. monetary policy signals as fresh inflation data and hawkish Federal Reserve commentary support the dollar. Sterling eases against both the dollar and the euro on Tuesday, while investors in the UK look ahead to gross domestic product data due on Thursday.
Highlights
- Sterling drops 0.3% to $1.3395 after U.S. inflation data beats expectations and Fed Governor Waller signals more rate hikes.
- Against the euro, the pound eases to 83.51 pence, retreating from last week's 20-month high despite recent pound strength.
- UK GDP data due Thursday is forecast to show 0.7% quarter-on-quarter growth, with limited impact on sterling unless there is a major downside surprise.
Dollar gains pressure sterling
As reported by Reuters, the pound is down 0.3% at $1.3395 after Federal Reserve Governor Christopher Waller argues for more rate hikes and data shows U.S. consumer prices rise more than expected in October.Sterling had risen close to 0.7% in the previous session, when reduced worries around AI and the Middle East, alongside lower oil prices, weigh on demand for the dollar and encourage a slightly stronger appetite for risk.
Against the euro, the pound is at 83.51 pence, marginally lower on the day as it eases from last week's 20-month high reached after the Bank of England raises interest rates. Even with the latest dip, the UK currency remains close to its recent highs after a sustained period of strengthening against the common currency.
UK growth data in focus
Lee Hardman, senior currency analyst at MUFG, says the speculative market remains heavily short the euro, meaning any relief from lower energy prices or other positive news could prompt investors to trim those positions and help the single currency recover some near-term ground.On the domestic side, investors are watching Britain's latest GDP data due on Thursday. A Reuters survey of economists forecasts 0.7% quarter-on-quarter growth in the third quarter, which would mark a pickup from the previous period.
Hardman says the market has taken a more bullish view on the pound over the past month on expectations of a more sustained pickup in UK growth this year. He adds that the GDP release is unlikely to materially change sterling's performance unless there is a significant downside surprise, which he says appears unlikely given much of the monthly activity data has already been released.
As a reminder, we recently covered UK deficit plans ahead of the October Budget amid modest GDP growth.
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