GBP/USD soars then slips on US and UK CPI

Daily Currency Update

GBP/USD soared yesterday as US inflation fell short of expectations for October. There was huge attention on the latest Consumer Price Index reading from the States which came out at lunchtime. The miss seemed to convince many market participants that the US Federal Reserve had finally brought inflation under control and that there was no longer any need to hike interest rates further.

The overall annual reading of CPI fell to 3.2% from 3.7% with the core number which strips out food and fuel costs slipping to 4% from 4.1%. The under-par print was the catalyst for a huge dollar sell-off with GBP/USD jumping from around 1.2280 to 1.2380 in five minutes and then continuing to push higher as the day went on ending the European session just under 1.25. Overnight it briefly touched 1.25 however it has since fallen away as the latest UK CPI print was released at 7 am. The overall annual reading showed a huge drop from 6.7% to 4.6% with the core reading also falling more than expected to 5.7% from 6.1%. This large moderation in price rises will come as a welcome relief to UK consumers and hopefully signal that the biggest spending squeeze since the early 80s is finally coming to an end. That said, an extended hold of rates by the Bank of England at their current level of 5.25% should be expected well into 2024 to ensure that price rises don't flare up again. GBP/USD is now falling back to 1.2450 with GBP/EUR at 1.1470 after briefly getting above 1.15 yesterday.