The Pound Sterling (GBP) remains under pressure, trading near 1.2600 against the US Dollar (USD), as traders assess the Federal Reserve’s (Fed) evolving monetary policy outlook and brace for UK inflation data.
Key Drivers:
- Fed Dovish Expectations Fade:
- The US Dollar remains strong, buoyed by expectations of a more gradual Fed rate-cutting cycle.
- Markets now see a 62% chance of a December rate cut, down from 77% a month ago, reflecting concerns about potential inflation from President-elect Donald Trump’s policies.
- Fed Chair Jerome Powell has refrained from commenting on Trump’s policies, citing it as “too early” to assess their impact.
- UK GDP Weakness:
- The British economy contracted by 0.1% in September, with Q3 growth stagnating.
- Analysts speculate that weak economic data could push the Bank of England (BoE) toward prioritizing growth with potential rate cuts.
- Trade Relations Uncertainty:
- Tensions linger over whether the UK will strengthen trade ties with the EU or US, with Trump’s advisors signaling diminished interest in a UK trade deal if the EU is prioritized.
What to Watch:
- UK CPI Data (Wednesday): October inflation figures will shape expectations for BoE’s December meeting and any potential rate cuts.
- US November PMI Data (Friday): Key indicators of US economic health will influence market sentiment.
