GBPUSD reaches 6 month high, following underwhelming US CPI print
The Federal Reserve will now feel justified in slowing down the pace it raises interest rates after U.S. inflation roundly underwhelmed expectations in November. The USD fell and stocks rose on a second consecutive inflation reading that signalled price rises were cooling and that the Fed can afford to ease back on interest rate hikes, allowing investors to spy a halt on the horizon.
Headline CPI inflation grew 7.1% in the year to November, which represents a sizeable decline from October's 7.7% and is well below the consensus expectation for 7.7%. Inflation rose 0.1% in the month to November, slower than the 0.3% expected and October's reading of 0.4%.
Core inflation, which is arguably more important to the Federal Reserve's reckonings, also undershot at 6.0% year-on-year, a deceleration on October's 6.3% and below expectations for 6.1%. The month-on-month increase in core was set at 0.2%, below both consensus and October at 0.3%.
In the immediate aftermath of this release, GBP/USD displayed the expected knee-jerk response by rocketing up to a new six-month high of 1.2439. The USD was also 0.80% down against the euro and recording losses against all G10 peers following the CPI data.
ECB and BOE meetings:
Financial markets are bracing for FED, ECB and BOE meetings this week, all holding their last policy meetings of the year in a concise period this week. All three of which are within 24 hours, (between Wednesday and Thursday).
All three central banks are set to deliver some sizeable increases of their respective base rates, with 50 bps being priced in across all these three central banks. Attention will also be questioning the FED dot-plot and terminal rates level.
BOE meeting – 50 bps expected but could be a split MPC, some may also still favour 75bps and some may still favour 25bps. An unprecedented 4-way split is also not out of the question. Labour and inflation data is on the horizon still and this week’s central bank meeting could be particular hard to predict as this data will surely play a part in the outcome.
ECB meetings – Data quiet in the ECB presently, all eyes also will turn to the December meeting of the ECB on Thursday. We expect a growing divide between forecast rates / forward guidance and the actual hikes and hawkish tone reflected by market data. ECB communications and language could actually still prove to be hawkish in their nature however as the Eurozone still suffers from soaring inflation across a basket of goods. Notably, many underestimated inflation in the Eurozone somewhat and it could once again be revised higher in revisions this week. Overall EURUSD trading could depend much more on the U.S CPI prints and price action as a result of this.
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