GBP declines following a drop in inflation data

Daily Currency Update

The pound experienced a decline against both the US dollar and euro following the release of data indicating a decrease in inflation for November. The inflation rate came in significantly below expectations, prompting the financial markets to adjust their predictions on when the Bank of England might initiate interest rate cuts.

In November, the annual consumer price inflation in Britain dropped to 3.9%, down from October's 4.6%, marking the slowest pace since September 2021. This figure fell below the projections of all economists surveyed in a Reuters poll, who had anticipated a rate of 4.4%. Additionally, core inflation exhibited an unexpectedly substantial decline, decreasing from 5.7% to 5.1%.

This led to the markets adjusting their outlook on Bank of England rate cuts and are now pricing in a 25 basis point cut by May 2024. Additionally, there is an almost 50% probability of such a cut occurring by March.