The US dollar extended its rally for a third consecutive session, buoyed by further yen depreciation after Sanae Takaichi secured leadership in Japan’s parliamentary vote. Bank of Japan officials reiterated their patient stance, signalling no imminent plans for rate increases.
GBPCAD retreated from its nine-year peak following stronger-than-expected inflation figures, with markets now pricing-in a 67% probability of a 25bps rate cut in the coming week.
*Daily move - against G10 rates as of 06:00 BST, 22.10.25
** Indicative rates - interbank rates as of 06:00 BST, 22.10.25
Sterling tumbled this morning as UK inflation remained unchanged at 3.8% year-on-year in September, falling short of forecasts for a rise to 4.0%. Meanwhile, core CPI eased to 3.5% and services inflation held steady at 4.7%. In response to the subdued data, markets have increased expectations for Bank of England rate cuts, with a 70% probability of a 25bps cut now priced-in by December – up from 30% prior to the release. This outcome strengthens anticipation of a more dovish stance from the BoE into year-end, with sentiment shifting firmly towards a rate reduction as the next likely move.
Next up for GBP will be the retail sales and PMI numbers on Friday. A softer print would highlight the weaker fundamentals in the UK and could well increase the odds of a cut in December.
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