By Alun John and Kevin Buckland
LONDON/TOKYO (Reuters) – The British pound fell to a two-month low on Wednesday as softer-than-expected British inflation data gave the Bank of England room to cut rates more forcefully, while the euro was at a 10-week low. prior to a Meeting of the European Central Bank.
The pound fell 0.65% against the dollar at $1.2988 for the first time since August 20 and dipped below the $1.30 level for the first time since August 20, after data showed annual consumer price inflation in September decreased from 2.2% in August to 1.7% in September.
That was the lowest figure since April 2021 and below the 1.9% forecast by a Reuters survey of economists. It reinforced expectations for a BoE rate cut next month and made a further cut in December more likely.
“The figures are undeniably forgiving for the Bank of England and pave the way for rate cuts at the two remaining meetings this year,” said Francesco Pesole FX strategist at ING.
“We believe this has incidentally opened the door to a period of sterling underperformance,” he said, adding that the pound is trading well below $1.30 and the euro above 84 pence.
The common currency was last 0.6% higher than the pound at 83.80 pence.
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Moves elsewhere were less dramatic, but the euro fell another 0.1% against the dollar to $1.0883, its lowest level since August 2, extending declines in recent weeks as traders anticipate Federal interest rate cuts. Reserves had priced in and a potential election victory by the US central bank had been factored in. former President Donald Trump – seen as dollar positive – in their thinking.
Investors will be closely watching Thursday’s European Central Bank meeting, but if policymakers implement the currently priced 25 basis point rate cut and President Christine Lagarde refrains from giving too many clues about the further interest rate outlook, the impact on the market can be limited.
Across the Atlantic, traders are currently 92% expecting a 25 basis point cut when the Fed sets policy on November 7, with an 8% probability of no change, according to CME Group’s FedWatch Tool (NASDAQ:). A month ago, traders saw a greater than 29% chance of a massive 50 basis point cut.
Market prices are still strongly in favor of a total of 50 basis points of easing this year, but comments from central bankers were hawkish overnight. Raphael Bostic of the Atlanta Fed said he planned just one rate cut of 25 basis points this year, while Mary Daly of the San Francisco Fed said “one or two” cuts in 2024 would be “reasonable.”
The dollar rose 0.1% to 149.345 yen, not far from Monday’s high of 149.98 yen, the strongest since August 1.
BOJ board member Seiji Adachi said on Wednesday the central bank should raise interest rates at a “very moderate” pace and avoid premature hikes, given uncertainties about the global economic outlook and domestic wage developments.
Australian and New Zealand dollars slumped as skepticism grew over stimulus measures from key trading partner China.
The stock fell as much as 0.51% to $0.6669, its lowest level since September 12, before recovering to $0.6703, while it fell as much as 0.69% to $0.6041, a level that was last seen on August 19.
On Saturday, China’s Finance Ministry said it would increase borrowing, without saying when or by how much. China will hold a press conference on Thursday to discuss promoting the “steady and healthy” development of the real estate sector.
“There has certainly been some skepticism about China’s real commitment to the kind of budget support that would be seen as truly cleansing,” and that has dragged down the Australian and New Zealand currencies this week, says Ray Attrill, head of FX strategy at National. Australia Bank (OTC:).
The New Zealand currency was also put under further pressure by data suggesting cooling inflation, leaving the door open for aggressive central bank easing.
