Pound Sterling slides as UK inflation decelerates as expected

• The Pound Sterling faces selling pressure against its major peers after the release of the UK CPI report for October.
• UK service inflation fell to 4.5% from 4.7% in September.
• Investors await the FOMC Minutes and US NFP data.

The Pound Sterling (GBP) declines sharply against its major currency peers on Wednesday, following the release of the United Kingdom (UK) Consumer Price Index (CPI) data for October.

The Office for National Statistics (ONS) has reported that the headline inflation has fallen to 3.6% year-on-year (YoY), as expected, from 3.8% in September. In the same period, the core CPI - which excludes volatile items such as food, energy, alcohol, and tobacco - has grown moderately by 3.4%, as expected, compared to the prior reading of 3.5%. On a month, the UK headline inflation rose expectedly by 0.4% after remaining flat in September.

Meanwhile, inflation in the services sector has also come down to 4.5% from 4.7% in September. Signs of price pressures cooling are expected to pave the way for an interest rate cut by the Bank of England (BoE) at its monetary policy meeting in December.

This month, BoE dovish expectations intensified after the release of the labour market data for the three months ending in September, which showed weakness in the job market.

On Tuesday, BoE policymaker Swati Dhingra stated at the University of Sheffield that she expects further disinflation in the services sector. She further argued that the central bank should push policy rates to the neutral level "fairly soon", a state where interest rates neither restrict nor stimulate the economy.

Going forward, investors will focus on the UK Retail Sales data for October and the preliminary S&P Global Purchasing Managers' Index (PMI) data for November, which will be published on Friday.

Daily digest market movers: Investors await FOMC Minutes, delayed US NFP data

• The Pound Sterling shows a sharp volatility against the US Dollar (USD) around 1.3150 during Wednesday's European session, following the release of the UK inflation data. The initial reaction from the GBP/USD pair was bearish, however, it strives to hold key immediate lows.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades calmly near the weekly high around 99.70. Investors brace for a sideways trend in the US Dollar ahead of the United States (US) Nonfarm Payrolls (NFP) data for September, which will be released on Thursday.
• Investors will closely monitor the US labour market data as it will significantly influence the US Dollar and market expectations for the Federal Reserve (Fed) monetary policy outlook.
• Economists expect US employers to have created 50K new jobs, higher than 22K in August. The Unemployment Rate is seen unchanged at 4.3%. Average Hourly Earnings, a key measure of wage growth, is expected to have grown steadily by 0.3% and 3.7% on a monthly and annual basis, respectively.
• Ahead of the US Nonfarm Payrolls (NFP) data, Fed officials have been expressing rising job market risks. On Monday, Fed Governor Christopher Waller said the US central bank should cut interest rates at the December meeting, citing a slowdown in the hiring trend.
• "I am hearing that firms are paying for AI investment by not hiring, and firms say low-and-middle income households are not spending, hitting hiring, which makes case for continuing interest rate cuts," Waller said.
• Currently, the CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25 basis points (bps) to the 3.50%-3.75% range in the December meeting has diminished to 48.9% from 66.9% a week ago.
• In Wednesday's session, investors will focus on the Federal Open Market Committee (FOMC) Minutes for the October meeting, which will be published at 19:00 GMT. In the meeting, the Fed reduced interest rates by 25 bps to 3.75%-4.00%.

Technical Analysis: Pound Sterling stays below 200-day EMA

The Pound Sterling trades broadly sideways around 1.3150 against the US Dollar on Wednesday. The overall trend of the GBP/USD pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3264.

The 14-day Relative Strength Index (RSI) strives to hold above 40.00. A fresh bearish momentum would emerge if the RSI falls back below that level.

Looking down, the April low near 1.2700 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.