Sterling at 1-week high against dollar ahead of US CPI
TLT•Sterling rose 0.1% to $1.3268, its highest level since October 7, while investors awaited US inflation data. Markets priced in a roughly 22% chance of a Federal Reserve rate hike at its October 27-28 meeting.
1. Sterling climbs ahead of CPI
Sterling rose 0.1% to $1.3268 per dollar by 1023 GMT on Wednesday, touching its strongest level since October 7. The pound also reached a fresh 16-month high against the euro, trading at 84.34 pence, as higher oil prices and concerns about France’s public finances weighed on the euro.
2. Investors await US inflation
Investors awaited US inflation data expected to show consumer prices surged in September, driven by rising gasoline and food costs. Markets assigned a roughly 22% chance of a Federal Reserve rate hike at its October 27-28 meeting. Analysts at Monex Europe said sterling’s near-term direction would depend on the dollar’s reaction to the data.
3. Budget and rate outlook
The Financial Times reportedly said UK finance minister John Healey was expected to fund new budget initiatives with higher taxes or spending cuts rather than additional borrowing, and to treat fiscal headroom as a contingency fund. Analysts at Monex Europe said they remained bearish on sterling ahead of the October 28 budget, citing fiscal risks and thin headroom. British government bond yields slipped, while Bank of England Chief Economist Huw Pill expressed scepticism about market pricing of four rate increases over the next year.
