Bitter Pill for GBP to Swallow

Market reports
Thanim Islam
  • “Sharp further fall” in inflation sinks GBP
  • Hawkish Fed continue to support USD
  • Waiting on tenterhooks for Powell

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GBP lost ground yesterday after BoE chief economist Huw Pill commented that there will be a “sharp further fall” in inflation in October, and hinted that we could see rate cuts by the middle of next year. Money markets are now pricing in 0.50% worth of rate cuts by September next year. USD gained across the board after Fed members Goolsbee, Logan, and Bowman echoed Neel Kashkari’s comments that the Fed are not done yet in combatting inflation.


Market rates

* Daily move - against G10 rates at 7:30am, 08.11.23

** Indicative rates - interbank rates at 7:30am, 08.11.23

Data points


  • EUR: ECB Nagel
  • USD: Fed Kashkari, Goolsbee, Barr, Schmid, Waller, Williams, and Logan

Our thoughts

GBP continues to trade lower following yesterday's move ahead of BoE Governor Bailey speaking this morning. Anything that echoes Pill's comments yesterday, and we could see further pressure on the currency. Overnight we have the latest job report from S&P Global, KPMG ,and REC UK. Just eurozone retail sales numbers this morning, but otherwise the day will be dominated by a host of speakers from the ECB and the Fed - particularly Fed chair Powell. Risk sentiment is understandably lower to start the day ahead of these speakers, but further hawkish commentary from the Fed and we’d expect USD to continue to recover.

Chart of the day

GBP was one of the best performing currencies in the first half of this year on rising interest rate expectations, as the UK continued to struggle to bring inflation lower. However, Huw Pill's comments yesterday that he expects a sharp fall in inflation in October has caused markets to increase their bets on rate cuts being conducted by the Bank of England next year. If GBP wasn’t in enough trouble on lowering growth expectations, add into the mix higher rate cut expectations and it seems GBP will struggle further. Q3 growth numbers on Friday are expected to show the economy shrank by 0.1%.

Source: Bloomberg Finance L.P.

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