Daily digest market movers: Pound Sterling moves higher while US Dollar corrects
- The Pound Sterling rises to 1.2480 as persistence in the United Kingdom’s inflation data for March forced traders to price out expectations for the Bank of England pivoting to rate cuts in the September meeting.
- Investors expect that the last mile for inflation to return to the 2% target will be bumpy. Currently, financial markets anticipate the BoE reducing interest rates only once this year in the November meeting.
- The UK Inflation data released on Wednesday indicated that annual core CPI data, which strips off volatile food and energy prices, grew by 4.2% year-over-year in March, above the consensus of 4.1% but significantly decelerated from February’s reading of 4.5%. The core inflation data is the Bank of England’s preferred inflation measure for decision-making on interest rates.
- A lower-than-expected decline in price pressures in March, combined with steady wage growth data for the three months ending February, forced traders to pare rate cut bets for the September meeting.
- After the release of the inflation data, BoE Governor Andrew Bailey said, “We’re pretty much on track for where we thought we would be in February on inflation. Bailey remains optimistic about a further drop in inflation next month. When asked about the impact of Middle East tensions, Bailey commented that the Oil price has not leaped as much as expected and the consequences of Middle East tensions are less than feared, reported FXStreet. https://www.<wbr>fxstree...
- Apart from the revision in BoE rate cut prospects, the GBP/USD pair has benefitted from a slight correction in the US Dollar. The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, fell sharply to 105.75 from a fresh five-month high of 106.40. The near-term demand for the US Dollar remains intact as Federal Reserve (Fed) policymakers keep emphasising the need for interest rates to remain higher for a longer period until they get convinced that inflation will return sustainably to the 2% target.
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