Pound Under Pressure

The British Pound has seen renewed selling interest today on the back of the latest inflation data released this morning. November headline CPI came in at 3.9% annualised, down from 4.6% prior and below the 4.3% the market was looking for. Core CPI was also seen falling to 5.1%, down from 5.7% prior and below the 5.6% the market was looking for. On the back of these figures traders are assigning a higher likelihood to the prospect of BOE easing early next year.

BOE Rate-Cut Pushback

The BOE itself has pushed back against those calling for earlier UK rate cuts. At the BOE last week, voting remained unchanged at 6-3 in favour of a hold vs hike. Additionally, governor Bailey warned that there was still a long way to go on inflation with rates likely needing to stay at higher levels for an “extended period.”

Still, on the back of the Fed shifting its rates outlook and with inflation continuing to fall steadily, traders are calling the BOE’s bluff, pegging an initial rate cut across H1 next year, in line with projections for the ECB and Fed.

Bearish GBP Risks

With the UK rate cut narrative likely to gain traction as inflation continues to fall and activity monitors weaken, GBP looks vulnerable to further downside, particularly against commodity currencies which are benefiting from a weaker US Dollar.

Technical Views

GBPCAD

Having failed at the retest of the broken bull trend line, GBPCAD has since turned sharply lower. Price is now testing the 1.6848 level support and with momentum studies bearish, the risk is for a break lower here. If we breach the level to the downside, 1.6538 comes back into view as the longer-run bear target.