Despite inflation cooling and market odds for a BoE rate cut jumping to 85%, Sterling remained range-bound as the data was widely anticipated, shifting focus to upcoming US jobs reports.
The British Pound showed remarkable resilience on Wednesday, holding steady around $1.3140 even after data confirmed UK inflation cooled in October. The consumer price index (CPI) slid to an annual rate of 3.6%, down from 3.8% in September, aligning perfectly with market forecasts.
Inflation Breakdown and Market Reaction
The moderation in inflation was primarily driven by smaller increases in gas and electricity bills compared to the previous year, alongside easing hotel prices. While the data supports a less hawkish monetary policy, its lack of surprise limited its impact on the currency.
Traders immediately adjusted their bets, with market-implied probability for a quarter-point Bank of England (BoE) rate cut in December jumping to 85%, up from 80% earlier in the week.
Why the Pound Didn't Budge
The cable's stability amidst dovish data can be attributed to two key factors:
- Fully Priced-In Data: The inflation figure met consensus expectations exactly. The market had already anticipated the cooling trend, meaning the news contained no new information to trigger a sell-off.
- Pre-Emptive Dovish Repricing: The market had likely already priced in the BoE's policy shift following its recent meeting, where the decision to hold rates was a narrow 5-4 split and policymakers explicitly opened the door for a December cut.
Shifting Focus: All Eyes on US Data
With the UK inflation print now in the rearview mirror, market focus is pivoting to the United States. The delayed US jobs data for September is scheduled for release, with traders bracing for significant volatility on Thursday.
The Pound's near-term trajectory will now be determined by the strength of the US labor market and its implications for Federal Reserve policy, which could easily overshadow the already-anticipated dovish tilt from the BoE.