UK Inflation Hits Three-Year Low, While the Dollar Gains Momentum
GBP
GBP/USD has dropped 0.5% to 1.2995 (interbank), while GBP/EUR is currently at 1.1947 (interbank).
The Pound has declined this morning as the UK’s annual inflation rate dropped to 1.7%, below the forecast of 1.9% and August’s figure of 2.2%. This marks the first time inflation has fallen below the Bank of England’s 2% target since April 2021.
Core inflation (which excludes volatile food and energy prices) increased by 3.2% annually in September, down from 3.6% in August and missing expectations of 3.4%. Additionally, Services CPI inflation for September fell to 4.9% year-on-year, down from 5.6% in August.
Yesterday’s, data also showed that UK wage growth had slowed to its weakest pace in more than two years.
This data strengthens the likelihood of rate cuts at the BoE’s remaining meetings this year, in November and possibly December.
Today’s Events (GMT+1):
07:00 - CPI (Sep) – Actual: 1.7% vs Forecast: 1.9%
07:00 - Core CPI (Sep) – Actual: 3.2% vs Forecast: 3.4%
EUR
EUR/USD has declined to 1.0882 (interbank), ahead of Thursday’s ECB policy meeting.
Yesterday, Germany’s ZEW economic sentiment index for October outperformed forecasts, indicating a stronger-than-expected recovery.
The ECB has already cut rates twice this year, and markets have nearly fully priced in another rate cut, reducing the deposit rate to 3.5% at this week’s meeting.
The ECB’s Monetary Policy Statement and the post-meeting press conference by President Christine Lagarde will be key to understanding the bank’s future policy direction.
A speech from Lagarde later today will be monitored, though the main focus remains on tomorrow’s rate decision.
Today’s Events (GMT+1):
19:40 - ECB President Lagarde Speaks
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, is higher at 103.39.
Recent data showing a resilient U.S. economy and slightly higher-than-expected inflation in September have led market participants to lower expectations for aggressive U.S. rate cuts.
Yesterday, Atlanta Fed President Raphael Bostic stated he anticipated just one more 25 basis-point rate cut this year, reflecting his view during last month’s Federal Reserve meeting.
Most market participants, however, expect two more cuts this year, totalling 50 basis points.
Traders currently assign a 92% likelihood of a 25 bps cut at the Fed’s next policy decision in November, with an 8% chance of no change, according to CME Group’s FedWatch Tool.
No significant events are scheduled for today.
CAD
USD/CAD remains steady, trading at 1.3785 (interbank).
Yesterday, Canada’s latest inflation figures (CPI) showed a 0.4% contraction in September, with the annual rate slowing from 2.0% in August to 1.6%, the smallest yearly increase since February 2021. The BoC’s two preferred core inflation measures remained stable, averaging a 2.35% annual rate, slightly cooler than forecasts. A three-month moving average of these measures fell to an annualised rate of 2.1%, down from 2.3% in August.
This has raised expectations for a larger-than-usual rate cut prompting the BoC to implement a 50 basis-point rate cut, rather than the previously expected 25 basis points.
Meanwhile, oil prices have recovered slightly after significant losses last week, with Brent crude rising 0.4% to $74.14 per barrel and West Texas Intermediate crude increasing 0.4% to $70.49 per barrel.
No significant events are scheduled for today.
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