Market News
Sterling weakens after UK inflation data, dollar gains ahead of central bank decisions
By Chibuike Oguh and Joice Alves
Summary
- ECB expected to hold rates on Thursday, BoE cut fully priced
- Yen weakens as BOJ expected to raise rates on Friday
- Dollar index gains, euro edges lower
NEW YORK/LONDON, Dec 17 (Reuters) - Sterling fell on Wednesday after an unexpected drop in UK inflation all but guaranteed the Bank of England would cut interest rates, while the dollar rose as markets awaited central bank decisions and weighed commentary from Federal Reserve officials.
Sterling was set for the biggest one-day drop as interest rate futures priced in a near 100% chance of a quarter-point rate cut from the BoE on Thursday.
Data had shown that British inflation fell much more sharply than forecast in November to 3.2%, its lowest since March, from 3.6% in October.
"The November CPI print surprised to the downside this morning. As a result, GBP is the worst performing G10 currency this morning after having outperformed yesterday," Goldman Sachs analysts led by Teresa Alves wrote in an investor note.
Sterling was down 0.53% to $1.3350, easing away from the two-month high it touched on Tuesday after data showed Britain's unemployment rate hit its highest since the start of 2021.
"For Sterling, we have noted that our view of relative underperformance is predicated on softer data, including on the inflation front, rather than a 'dovish' reaction function in itself. Today’s data goes in that direction and focus will now turn to the BoE meeting tomorrow," the Goldman Sachs analysts said.
CENTRAL BANK MEETINGS IN FOCUS
Federal Reserve Governor Christopher Waller said on Wednesday the U.S. central bank still has room to cut interest rates amid rising job market weakness.
