UK inflation boost propels Pound Sterling higher

The Pound Sterling Surges After UK Inflation Data Beats Expectations

• The Pound Sterling rises sharply after the UK inflation data for October came in hotter than expected.
• Hot UK inflation data could diminish the odds of the BoE delivering another interest-rate cut in December.
• Several Bank of England policymakers have warned about price pressures remaining persistent.

The Pound Sterling (GBP) has experienced a significant surge against its major peers following the release of data from the UK Office for National Statistics (ONS) indicating a higher-than-expected acceleration in inflation for October. The Consumer Price Index (CPI) report revealed an annual headline inflation rate of 2.3% YoY, surpassing estimates of 2.2% and the previous month’s reading of 1.7%.

Key Highlights of the UK CPI Report:

• Annual headline inflation rose to 2.3% YoY, exceeding expectations and the previous month’s figure.
• Monthly headline inflation increased by 0.6%, surpassing forecasts and showing a sharp rise from September.
• Core CPI, excluding volatile items, grew by 3.3%, higher than the previous reading of 3.2%.
• Services inflation, a crucial indicator for BoE officials, accelerated to 5% from the previous release of 4.9%.

This surge in inflation could potentially impact the BoE’s decision-making regarding interest rates in the upcoming December policy meeting. Traders, who previously anticipated an interest rate cut, may reconsider their positions in light of the latest data.

Insights from Bank of England Policymakers:

• BoE Governor Andrew Bailey expressed concerns about persistent price pressures, especially in services inflation.
• BoE external member Catherine Mann highlighted financial markets’ inflation expectations, suggesting challenges in reaching the target of sustainable 2% inflation.

Market Analysis: Pound Sterling Leading the Pack

• The Pound Sterling has surged above 1.2700 against the US Dollar (USD) following the robust UK CPI report.
• US Dollar Index (DXY) remains steady as investors await clarity on the Federal Reserve’s interest rate path.
• Expectations of economic policies under President-elect Donald Trump are influencing market sentiments.
• Fed’s stance on interest rate cuts has evolved, impacting market expectations for the upcoming meeting.

Technical Analysis: Pound Sterling’s Recovery Continues

The Pound Sterling has broken above the key resistance level of 1.2700 against the US Dollar, indicating a positive trend. The GBP/USD pair’s momentum suggests a potential move towards 1.2800, with strong support at 1.2600.

Key Technical Indicators:

• RSI has rebounded from oversold levels, indicating a bullish sentiment.
• The pair is trading below the 200-day EMA, suggesting a negative trend.

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