The Pound Sterling (GBP) is trading in a narrow range near 1.2750 against the US Dollar (USD) during Tuesday’s European session as investors await the US Consumer Price Index (CPI) data for November, set to release on Wednesday. Economists predict annual headline inflation will rise slightly to 2.7% from 2.6% in October, with core CPI (excluding food and energy) expected to remain steady at 3.3%. Monthly figures are forecasted to grow by 0.2% for headline CPI and 0.3% for core CPI. Unless the data deviates significantly from these forecasts, market expectations for the Federal Reserve’s (Fed) policy decision on December 18 are unlikely to change. Recent Fed commentary suggests confidence that inflation is on track toward the bank’s 2% target.
However, hawkish Fed Governor Michelle Bowman cautioned on Friday that the Fed should proceed “cautiously and gradually” in cutting rates, as inflation remains elevated. The FedWatch tool suggests a nearly 90% chance the Fed will reduce rates by 25 basis points to 4.25%-4.50%.
Amid a light UK economic calendar this week, the GBP is performing strongly against major currencies. Investor confidence is building that the Bank of England (BoE) will leave rates at 4.75% during its December 19 meeting.
Although UK headline inflation has ticked up again, suggesting the BoE may need to take further steps to stabilize inflation, most BoE officials are expected to support holding rates steady.
Later this week, attention will turn to the UK’s monthly Gross Domestic Product (GDP) and Industrial & Manufacturing Production data for October. Economists anticipate a recovery in both factory output and GDP after recent declines in September, offering insights into the current state of the UK economy.
