The US Dollar plummeted this afternoon following the publication of the latest US consumer price index.
According to data published by the Bureau for Labour Statistics, headline inflation in the US fell from 8.2% to 7.7% in October, versus the drop to 8% forecast by economists. Core inflation also printed below expectations, sliding from 6.6% to 6.3%.
The weaker-than-expected inflation figures triggered a collapse in the US Dollar as investors repriced expectations for the Federal Reserve’s next interest rate hike.
Today’s data, coupled with last week’s underwhelming US employment report has seen the odds of another 75bps rate hike from the Fed in December surge to 80%.
The sharp upturn in the GBP/USD exchange rate has been aided by broad Pound strength. Sterling sentiment is strengthening amid optimism over UK Prime Minister Rishi Sunak’s meeting with Irish Taoiseach Micheál Martin. It’s hoped the meeting could help to thaw relations and open up a dialogue over the controversial Northern Ireland Protocol.
However, the GBP/USD exchange rate may struggle to consolidate these gains with the release of the UK’s latest GDP figures on Friday. The preliminary estimate for third quarter growth is expected to report a sharp contraction in UK growth, adding weigh to the Bank of England’s (BoE) claims the UK is already in a recession.