US Consumer Price Index to set expectations for the monetary policy trajectory
Daily Currency Update
Initially, the British Pound depreciated in response to news of slowing wage growth in the UK. However, this downward pressure on the currency is expected to be limited, as the latest data is unlikely to significantly alter the Bank of England's monetary policy stance when it meets on Thursday.The Office for National Statistics (ONS) reported that wage growth, including bonuses, slowed to 7.2% in October, significantly below the market consensus of 7.7%. However, this downward surprise was counterbalanced by the upward revision of September's figure to an eye-catching 8.0%.
Regular pay growth also softened, edging up to 7.3%, which is lower than the 7.4% anticipated by market participants and below September's revised 7.8%.
Wages play a crucial role in domestic inflation, and the Bank of England believes that current wage levels remain too high to bring inflation back to its 2% target.
Despite the initial reaction to the wage data, the Bank of England seems unlikely to change its current monetary policy stance, which is combating inflation.
Key Movers
With anticipation building for Tuesday's release of the U.S. Consumer Price Index (CPI), analysts are predicting a further decline in inflation, taking headline inflation to the edge of the 2% target range.The market anticipates deflationary trends in goods prices to emerge in the November report, while services inflation will persist due to persistent labor market tightness. This tightness was reaffirmed by Friday's strong non-farm payrolls report, which exceeded analysts' expectations and further dampened expectations for aggressive rate cuts in 2024.
US November headline inflation is forecasted to dip to 3.1% yoy (from 3.2% prior), while core inflation (excluding food and energy) is expected to remain unchanged at 4.0% yoy. Any significant deviation from these expectations may lead the Fed to adjust its policy stance.
This week, major central banks, including the Fed, ECB, Swiss National Bank, Bank of England, and Norges Bank, will announce their monetary policy decisions. According to a Bloomberg survey, economists predict no interest rate changes; all banks are expected to maintain the status quo.
Expected Ranges
- GBP/USD: 1.25527 - 1.25842 ▲
- GBP/EUR: 1.16524 - 1.16851 ▲
- GBP/AUD: 1.90499 - 1.91369 ▼
- EUR/USD: 1.07611 - 1.07832 ▲