GBPUSD surges toward 1.1640s, after hitting a two-month high at around 1.1680s

• The Pound Sterling gets a respite and climbs more than 300 pips on soft US inflation data.
• US October CPI missed expectations, signaling inflation is easing, though slower than the Fed’s projections.
• Fed’s Daly: Expects the Federal Funds rate (FFR) to peak at around 4.9%.

The Pound Sterling soars toward the 100-day Exponential Moving Average (EMA) following a cooler-than-expected US inflation report, which weighed on the US Dollar amidst speculations that the Federal Reserve would tighten at a slower rhythm than 75 bps increases. At the time of writing, the GBPUSD is trading at 1.1647.

GBPUSD  advanced sharply on lower-than-expected US inflation report

Thursday’s US Consumer Price Index (CPI) report for October showed that inflation is finally easing a touch. The headline CPI was 7.7% YoY, below estimates of 7.9%, while the core CPI, which excludes volatile items like food and energy, followed suit, at 6.3% YoY, below expectations of 6.5%. That said, the US Dollar weakened across the board, while US Treasury bond yields plunged, with the 10-year down 24 bps at 3.857%.

The US Dollar Index, which tracks the buck’s value vs. a basket of six rivals, edged down 1.91% at 108.332, a tailwind for the GBPUSD, which bounced 300 pips after hitting a daily low of 1.1345.

At the same time, the US labor market updated the unemployment claim figures, which were overshadowed by the US inflation report. Initial Jobless Claims for the last week rose by 225K vs. 220K estimates. Even though the last week’s Nonfarm Payrolls report added more jobs than economists foresaw, the unemployment rate ticked up to 3.7%, meaning that the labor market remains tight but begins to feel the impact of restrictive policy.

Aside from this, Fed officials crossed newswires after the release of US economic data. Philadelphia’s Fed Harker said inflation remains too high and added that rate hikes below 75 bps “are still significant.” He said that future policy decisions would be data-dependant. Of late, the Dallas Fed President Logan said that October CPI data is welcomed, but there’s a long way to go. She added that the process of cooling the economy is just getting started.

San Francisco Fed President Mary Daly said October’s CPI was good and is just one “example of encouraging data.” She favors slow, steady rises to the Federal Funds rate (FFR), expecting it would peak at around 4.9%.

On the UK front, the release of the UK’s GDP for the third quarter is scheduled for release on Friday, which would shed some light on the status of the British economy. Late in the next week, the UK fiscal statement announced on November 17 would be the next catalyst for GBPUSD traders.

GBPUSD Key Technical Levels