Sterling Strengthens Ahead Of UK Inflation Data
London: 19 December 2023 (TraderMade): The Pound Sterling (GBP) is rising ahead of tomorrow's release of UK inflation data. Investors are anticipating further declines in headline and core inflation due to the Bank of England's (BoE) tighter monetary policy- dampening consumer spending.
However, despite this expected inflation drop, BoE Deputy Governor Ben Broadbent warns that a dovish shift in policy is unlikely. He points to concerns about "sticky wage growth," meaning persistent wage increases, which could fuel inflation even with lower consumer spending. This damps widespread market expectations for four or five rate cuts in 2024.
The GBPUSD pair climbed 0.445% to 1.27041 at about 11:18 AM GMT, compared to its close yesterday.
The Bank of England's higher interest rates have led to easing inflation, expected to show a 0.2% monthly growth and a 4.4% annual decline in headline CPI. Core inflation is estimated to drop to 5.5%.
A continued easing trend would be relieving for BoE policymakers pushing for interest rate tightening. The UK's monthly Producer Price Index indicates a contraction, with input and final product prices declining due to decreased consumer demand.
Key points
- GBP strengthens with hopes for easing inflation.
- BoE remains cautious due to potential wage-driven inflation.
- The US Dollar remains subdued despite mixed signals from Fed officials.
