The Pound Sterling fell to a two-month low on Wednesday following weaker-than-expected inflation data from the UK. This data opened the door for the Bank of England to accelerate the pace of interest rate cuts. Meanwhile, the euro hit its lowest level in ten weeks ahead of an upcoming European Central Bank meeting.
The pound dropped to $1.2988, marking a 0.65% decline against the dollar, breaking below the $1.30 level for the first time since August 20. This decline followed data showing the annual consumer price inflation rate fell to 1.7% in September, down from 2.2% in August. This figure is the lowest since April 2021 and came in below economists’ expectations of 1.9%. These numbers have increased the likelihood of the Bank of England cutting rates next month, with an additional cut in December becoming more likely.
Elsewhere, the euro fell further against the dollar, reaching $1.0883, its lowest level since August 2. Traders have dismissed the likelihood of rate cuts from the Federal Reserve and are factoring in the possibility of former President Donald Trump winning the upcoming elections, which is seen as positive for the dollar.
Thursday’s European Central Bank meeting is expected to draw investors’ attention, though the impact may be limited if the bank delivers the anticipated 25 basis-point rate cut.
In the United States, there is a 92% probability that the Federal Reserve will cut interest rates by 25 basis points at its meeting on November 7, compared to an 8% chance of no change, according to CME Group’s FedWatch Tool. A month ago, expectations pointed to a greater likelihood of a 50 basis-point cut.
In other developments, the dollar rose 0.1% against the Japanese yen, reaching 149.345 yen, close to Monday’s high of 149.98 yen, the strongest level since early August.
In Japan, a Bank of Japan board member emphasized the need to raise interest rates at a moderate pace to avoid risks associated with global inflation and local wage developments.
The Australian and New Zealand dollars also weakened as doubts grew over China’s commitment to stimulating its economy. The Australian dollar fell to its lowest level since mid-September before recovering slightly, while the New Zealand dollar hit its lowest level since August. The New Zealand dollar faced further pressure after data showed slowing inflation, keeping the door open for more aggressive interest rate cuts from the Reserve Bank of New Zealand.
