Sterling under pressure post-CPI data in the US

The Pound Sterling is facing intense selling pressure due to the stable US core Consumer Price Index (CPI) for September, which has weakened the risk appetite of traders and market participants.

UK factory data for August contracted for the second time in a row, as firms cut heavily on input costs due to a poor demand outlook. Bank of England policymakers are preparing for November’s interest rate decision, with BoE’s Katherine Mann favoring further policy-tightening to bring down inflation to 2% in a timely manner.

Monthly Industrial Production contracted at a higher pace of 0.7%, while investors forecasted a decline by 0.2%. Manufacturing Production was double expectations of 0.4%. On an annualized basis, Industrial Production landed at 1.3%, below the estimates of 1.7% but higher than the former reading of 1%.

The monthly Gross Domestic Product (GDP) grew by 0.2% as expected. In July, the overall output contracted by 0.6%. The risks of a rebound in inflation are persistent, as deepening Middle East tensions would keep the oil market extremely tight through 2024. The expected participation of Iran in the Israel-Hamas conflict could disrupt the supply chain significantly.

Shortage of energy in the UK economy due to supply chain disruptions could accelerate headline inflation, and UK Prime Minister Rishi Sunak may miss fulfilling his promise of halving inflation to 5.2%. The US Dollar Index recovers sharply after the inflation report for September remained mostly in line with estimates.

Expectations of one more interest rate increase from the Federal Reserve remain lower as Fed policymakers become worried about rising US Treasury yields.