GBP/USD fell to 1.3430 after Fed Governor Waller warned of a potential half-point rate hike in December, contingent on upcoming October CPI data, while the BoE maintains a cautious stance.
The pair fell to around 1.3430 after Fed Governor Waller said a half-point December rate hike may be needed if October core CPI comes in at 0.3% or higher, a notably hawkish shift (Speechtracker 8.6/10). Higher US rate expectations lift the Dollar against the Pound. A softer-than-expected CPI at 13:30 GMT could reverse the move, which caps confidence in the bearish direction.
Waller's hawkish speech (Speechtracker 8.6/10 vs 7.2 average) raised the odds of a half-point December hike if October core CPI is 0.3% or higher, pushing the FXS Fed Sentiment Index up 1.58 points to 143.91 in hawkish territory. This supports upside risk to the Dollar. However, the Dollar had been under pressure for weeks on US-Iran deal hopes lowering oil prices, and a soft CPI print could temper tightening bets.
BoE Deputy Governor Lombardelli would not rule out a December rate hike, keeping a mild hawkish bias alive, but her tone was less confident (6/10 Speechtracker) citing a 'low-gear economy' and a real fall-off in hiring. Support from tightening prospects and pressure from growth concerns largely offset each other, while the day's Dollar move dominated the pair.
The British Pound retreated against the US Dollar on Tuesday, trading near 1.3430 as markets reacted to hawkish comments from Fed Governor Christopher Waller. Waller indicated that a half-point rate hike could be necessary in December if October core CPI inflation reaches 0.3% or higher, driving a recovery in the US Dollar Index to 101.65.
The pair turned negative around 1.3430 after Fed Governor Waller said further rate hikes are needed and flagged a possible half-point December hike if October core CPI inflation is around 0.3% or higher, boosting the US Dollar.
The US October CPI report due at 13:30 GMT is the key event; a downside inflation surprise could challenge rate hike expectations and weigh on the Dollar, while a hot print would reinforce Fed tightening bets.
He said further rate hikes are needed given high inflationary pressures and a solid labor market, and warned a half-point Fed hike may be needed in December if October core CPI comes in around 0.3% or higher.
The hawkish tone makes markets price a higher probability of additional Fed tightening, creating upside risk for the Dollar, though a weaker-than-expected CPI reading could challenge those rate hike expectations.
Deputy Governor Clare Lombardelli would not rule out a rate hike in December, keeping the possibility alive, though she described a low-gear economy and cooling hiring that temper the case for aggressive tightening.