Sterling made strong gains against the US dollar this morning.
Weak economic data emerging from the US caused GBP/USD to surge a chunky percentage point to 1.207 in yesterday’s trading session, and another 0.3% to 1.210 in this morning’s Asia window.
The Chicago Purchasing Managers’ Index (PMI), a measure of manufacturing output, had the lowest reading since May 2020, while US mortgage applications fell 0.8% after a 2.2% advance in the previous period.
Sterling made strong gains against the US dollar in November – Source: xe.com
Employment data also failed to impress, while the goods trade balance widened its deficit more than expected.
As such, Federal Reserve chair Jerome Powell signalled a slower pace of interest rate hikes in the months to come.
"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” said Powell, though he did note that the terminal rate could be "somewhat higher" than the 4.6% indicated in the September projections.
EUR/GBP closed the Wednesday session at .863, around 12 basis points below the intraday high, though the euro has the slight upper hand this morning having added a few pips.
Yesterday’s EU headline inflation data came in at a flat 10% against a 10.3% forecast, though that figure is still unacceptably high given the 2% target, so excessive rate hikes are likely to stay on the agenda in the coming months.
Combined with Powell’s dovish overtures, EUR/USD jumped a full percentage point to 1.042 yesterday, and continued to rally another 0.33% to 1.045 in today’s Asia window.