Sterling slides
Sterling took a leg lower ahead of the European open yesterday. Despite some tentative signs of recovery, GBP was still unable to claw back losses incurred during yesterday’s session. Before we cover the cause and implications of yesterday’s stumble amongst GBP crosses, let’s look at why the Pound was set up for a significant fall. Tuesday afternoon saw the release of a set of much awaited US data. The extraordinary data released concerned many economic measures but most notably contained new and missing data on the US labour market.
The data was mixed but on net at least should offer Fed officials sufficient justification to continue favouring rate cuts into 2026. Key takeaways included the unemployment rate now sitting at 4.6%, above the FOMC’s 4.5% projection which in turn is above the September reading of 4.4%. These data left the Dollar offered and GBP was a net beneficiary of flows out of the Dollar on Tuesday. GBPUSD gained a big figure during the session, trading through the mid-1.34s whilst GBPEUR settled more comfortably in the 1.14s.
This return of value set the Pound up for a significant stumble yesterday upon the release of underwhelming inflation figures. The data showed that headline inflation in November fell to 3.2% from 3.6% in October. This compares to a 3.5% consensus forecast. Behind the headline, a corresponding drop in core inflation showed broad based price level weakness. Key inflation components of food, consumer goods and services also showed signs of weakness fuelling expectations of a Bank of England rate cut today and more next year. As we have noted this week, investors remain chronically short GBP which should in theory have limited the sensitivity of GBP to negative news flow and data. This makes yesterday’s Sterling stumble all the more significant.
Discussion and Analysis by Charles Porter
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