A further advance in consumer prices, combined with hot jobs data, diminished hopes for a dovish pivot from the US Federal Reserve when it meets later today.
Another 75 bps hike to 4% is expected; the Fed said it was “driven by data” and “strongly committed” to reducing inflation after all.
That’s bad news for the struggling housing market but good news for the US dollar, with the dollar index (DYX) holding strong at 111.378.
Cable has edged back slightly to US$1.149 this morning having added 0.19% yesterday, while the EUR/USD pair is looking bearish at US$0.989.
The Bank of England has begun its delayed bond disposal, as it looks to unwind over £850bn worth of government debt accrued throughout its 14-year stimulus programme.
So far the European Central Bank and the Fed have considered, but not actively pursued, similar QT measures.
How will cable respond to £900bn QT cycle? – Source: capital.com
UK 10-year gilts have already reacted positively, having dropped to 3.46% and while QT should have a positive effect on the pound, it is likely to be far more long-term.
EUR/GBP has cut back to the 85.9p area following a weak Tuesday trading session.