Pound Sterling weakens even though hot UK CPI diminishes BoE dovish bets.

The Pound Sterling faces pressure against its major peers despite a faster-than-expected increase in UK inflation weighs on BoE rate cut bets for December.
BoE’s Ramsden supports a less gradual easing approach as he is confident that the disinflation trend is intact.
The Fed is expected to deliver fewer interest rate cuts ahead due to expectations of a high inflation outlook.

The Pound Sterling (GBP) weakens against most of its peers on Thursday even though traders doubt whether the Bank of England (BoE) will cut interest rates again in the December meeting. Market speculation for BoE rate cuts next month diminished after the release of the United Kingdom (UK) Consumer Price Index (CPI) data for October on Wednesday showed that price pressures accelerated faster than expected.

UK’s headline inflation came in higher than the bank’s target of 2%, the core CPI, which excludes volatile items, accelerated unexpectedly, and the service inflation, which BoE officials closely track, grew at a faster pace of 5%. It seems the headline inflation is on track to where the Monetary Policy Committee (MPC) projected at the start of the month. The MPC forecasted inflation at 2.4% and 2.5% in November and December, respectively.

The inflation data underscores BoE Governor Andrew Bailey’s advice of adopting a gradual policy-easing approach in his commentary at the press conference after the policy decision of cutting interest rates by 25 basis points (bps) to 4.75% on November 7.

On the contrary, BoE Deputy Governor Dave Ramsden said after the inflation data release on Wednesday that he expects the economy to “continue to normalize” with an ongoing trend toward “low and relatively stable inflation,” Bloomberg reported. The comments from Ramsden appeared to be dovish as he said that he would consider a less gradual rate-cut approach if the evidence starts to “point more clearly to further disinflationary pressures.”

Going forward, investors will pay close attention to the Retail Sales data for October and flash S&P Global/CIPS Purchasing Managers Index (PMI) data for November, which will be published on Friday.