GBP/USD trips down below 1.1250 post-UK hot CPI, pressures the BoE
- GBP/USD failed to cling to the 1.1300 figure on concerns that the BoE would hike less than estimated.
- UK Inflation rose to fresh 4-decade highs above 10%, exerting pressure on the Bank of England.
- The US housing market continued to deteriorate amidst the Federal Reserve’s tight monetary policy.
The British Pound slides to fresh two-day lows below 1.1300 against the US Dollar after UK inflation extended to double digits, to a new 40-year high, while United States (US) housing data extends its decline due to Federal Reserve (Fed) aggressive policy. The GBP/USD is trading at 1.1248 at the time of writing after hitting a daily high at 1.1358.
Heightened UK Inflation pressures the BoE to act amid the ongoing economic slowdown
Early during the European session, the UK Office for National Statistics (ONS) revealed the Consumer Price Index (CPI) for September rose by 10.1% YoY, above estimates, and higher than August’s 9.9%, cementing the case for further tightening by the Bank of England (BoE). Also, core CPI jumped from 6.3% YoY vs. 6.4% foreseen.
The GBP/USD tumbled below 1.1300 on the news after political turmoil in the country, linked to the new Prime Minister’s tax-cut plan, witnessed the sacking of Finance Minister Kwarteng, replaced by Jeremy Hunt, who scrapped Liz Truss’s budget. Meanwhile, market participants anticipate that the BoE will hike 75 bps rather than 100 as the UK economy further deteriorates.
Fed’s aggression weighing on the US housing market
Across the pond, US Housing Starts for September declined by 8.1% MoM after August’s data surprisingly grew by 13.70%. The housing market continues to bear the brunt of the Fed interest-rate increases, as the US central bank embarked on a mission to bring inflation towards its 2% target, despite tipping the US economy into a recession.
On Tuesday, Minnesota Fed President Neil Kashkari reiterated that inflation is too high, and he does not see the case for pausing interest-rate increases. Kashkari added that if the Federal funds rate (FFR) hits 4.5-4.75% and inflation remains high, the Fed would need to continue its restrictive policy.
In the meantime, the US Dollar Index, a gauge of the greenback’s value against six currencies, is up by almost 0.80% at 112.778, underpinned by US Treasury bond yields, with the 10-year benchmark note yielding 4.098%, gaining eight bps.
GBP/USD Price Analysis
The GBP/USD extended its losses, below October’s 18 low, putting in play a fall towards Monday’s 1.1208 daily low, which, once cleared, could send the Pound Sterling toward the 20-day Exponential Moving Average (EMA) at 1.1127. If it gives way, the GBP/USD next stop would be the 1.1100 figure, followed by the October 12 1.0923 cycle low.