GBPUSD grinds higher toward 1.1880 as traders eye US Existing Home Sales

• The GBPUSD clings to gains of 0.24% as the North American session begins.
• Federal Reserve hawkish commentary continued, though market sentiment is upbeat.
• Retail Sales in the United Kingdom climbed above estimates, a tailwind for the GBP.
• Traders eye US Existing Home Sales and Fed speak.

The British Pound (GBP) edges north of 1.1880 amidst a risk-on impulse, as shown by equity futures in the United States climbing with no fundamental reason after a slew of Federal Reserve (Fed) officials signaled rates would continue to rise. At the time of writing, the GBPUSD is trading at 1.1882, above its opening price by 0.35%, capitalizing on broad US Dollar (USD) weakness.

Sentiment turned positive as North American traders waited for US economic data on Existing Home Sales. Given that the last two inflation reports in the United States, namely the Consumer Price Index (CPI) and the Producer Price Index (PPI) propelled an improvement in market sentiment, Fed policymakers pushed against a possible Fed pivot. St. Louis Fed President James Bullard said that interest rates are not “sufficiently restrictive” and added that would be if the Federal Funds rate (FFR) hit the 5% to 5.25% area.

Echoing his comments, Minnesota’s Fed President Neil Kashkari says that one-month data can’t over-persuade the Fed, as it needs to keep at it until they’re sure that inflation has stopped climbing. On Friday, the Boston Fed President Susan Collins noted that the Federal Reserve needs to continue hiking rates, adding that rates will need to keep high for some time.

Earlier in the European session, the United Kingdom (UK) calendar featured Retail Sales, which surprisingly were above forecasts, even though the Bank of England (BoE) acknowledged the UK economy entered a recession. Retail Sales for October rose by 0.6% MoM against 0.3% estimates, while excluding volatile items, grew by 0.3% MoM, less than 0.6% forecasts. On an annual pace, both readings contracted less than estimates but remained negative.

Meanwhile, traders continue to asses a 4-decade high inflation level reached in the UK. The Consumer Price Index (CPI) expanded by 11.1% YoY in October, and above the Bank of England projections that inflation would peak at around 10.9%. As shown by STIRs, money market futures estimates an 82% chance that the Bank of England would hike 50 bps to 3..50%.

Furthermore, the UK Finance Minister Jeremy Hunt announced a £55 billion budget, plagued by tax rises and spending cuts. The budget is split between £30 billion in spending cuts and £25 billion in tax rises. However, most spending cuts are penciled in after the next election, due on January 2025.

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