GBPUSD pierces 1.2000, reaching 3-month highs but retreated toward 1.1920s

• Prices paid by producers in the United States ticked lower, a welcomed sign by investors seeking risk, and the US Dollar weakened.
• Employment data in the UK was mixed, though the GBP is supported by overall US Dollar weakness.
• Federal Reserve officials committed to tackling inflation, albeit slowing the pace of interest-rate increases.

The Pound Sterling soars sharply against the US Dollar (USD) following the release of prices paid by producers in the United States, showing that inflation is easing. Also, an upbeat UK employment data report underpinned the Cable, as shown by the GBPUSD gaining more than 1.50%. At the time of writing, the GBPUSD is trading at 1.1915.

Inflation in the US is cooling as CPI and PPI ease in October

The sentiment is upbeat, triggered by two Federal Reserve (Fed) officials saying it would be appropriate to slow the pace of rate hikes following the release of a soft October US Consumer Price Index report. Also, the Producer Price Index (PPI) for the same period expanded by 8% on an annual pace, below the 8.3% estimated, as shown by a US Department of Labor (DoL) survey. The core PPI, which excludes volatile items, rose 6.7% YoY, below the expected 7.1%. Given that US CPI and PPI readings are beginning to flash signs that inflation in the United States is starting to cool down, the Federal Reserve has some reasons to slow down the pace of tightening. Therefore, further US Dollar weakness is expected.

On the US PPI release, the GBPUSD edged towards its daily high at 1.2028, registering a three-month fresh high, but retreated some of its gains, as the GBPUSD sits below the 1.2000 figure.

Of late, several Federal Reserve policymakers crossed newswires. Lisa Cook, one of the newest Fed Governors, said that inflation is much too high and the central bank’s focus is on addressing inflation. At the same time, Philadelphia’s Fed President Patrick Harker expressed that removing $2.5 trillion from the Fed’s Balance Sheet is a “best guess.”Harker added that he is not “overly worried” about inflation expectations and that the Fed can pause as long as the central bank continues to fight inflation.

Meanwhile, the NY Fed Empire Manufacturing rose by 4.5, smashing expectations for a contraction of 6.

On the UK side, the UK’s Chancellor of the Exchequer, Jeremy Hunt, gave some clues regarding the Autumn Budget, to be released on Thursday. He said that those who have more will be asked to provide more and that “inflation-busting pay awards would just fuel inflation,” suggesting that the new Tory government would be fiscally responsible.

Data wise, employment data in the UK showed that the number of people in work in the UK dropped 52K, more than the 25K falls estimated by street economists. At the same time, the Unemployment Rate rose by 3.6%, exceeding the 3.5% expected.

That said, the UK economic docket will feature the Consumer Price Index (CPI), the Producer Price Index (PPI), and Retail Sales for October. On the US front, the calendar will reveal Retail Sales, Industrial Production, Capacity Utilization, and Fed speak.

GBPUSD Key Technical Levels