GBP/USD rallies to multi-month highs

The sterling extended its gains towards 1.1790s after a soft US inflation report. The US Dollar sharplyfalls during the US session, as the US Dollar Index edged down 1.20%, below the 107.000 mark.

The Consumer sentiment reading in the United States worsened as inflation expectations rose. The Pound Sterling keeps rising during the session, following a softer inflation report in the United States, which increased speculations that the Fed might lift rates at a slower pace.

China’s Covid-19 restrictions were relaxed, a sign that could bolster the world’s second-largest economy. At the time of writing, the GBPUSD is trading at 1.1795., above its opening price by 0.65%.

Wall Street’s cling to Thursday gains, a reflection of an upbeat sentiment. The University of Michigan’s Consumer Sentiment for November fell to a four-month low, from 59.5 to 54.7, while inflation expectations rose.

Americans expected inflation in one-year would rise to 5.1%, and for five to 10 years, consumers foresee inflation peaking at 3%. Joanne Hsu, director of the survey, said, “Continued uncertainty over inflation expectations suggests that such entrenchment in the future is still possible.”

Latest US Consumer Price Index reading is still weighing on the US Dollar, as headline CPI and core CPI for October fell below expectations.

Fed officials commented that it was “appropriate” to slow the pace of interest-rate hikes. Nevertheless, most of them commented that the Fed is still tightening monetary policy, as the Dallas Fed President Lorie Logan said that “a slower pace should not be taken to represent easier policy.”

On the UK front, the Gross Domestic Product for Q3 shrank more than foreseen in September, indicating the beginning of a prolonged projected recession by the BoE. UK GDP fell 0.6% between August and September, more than the 0.4% contraction estimates by analysts.

The latest data would provide a rugged backdrop to the finance minister Jeremy Hunt, who is expected to tighten fiscal policy as the UK battles 40-year high inflationary pressures. Rishi Sunak’s budget is considering tax rises and cutting public spending up to GBP 55 Billion a year.

The US Treasury Secretary and former Fed Chair Janet Yellen said October’s inflation reading was positive. Still, she cautioned that core CPI was lower, but shelter prices remain high.