Pound slides as UK inflation misses expectations

The pound trended broadly lower on Wednesday, following the publication of the UK’s consumer price index.

Trade in Sterling is mixed so far this morning, with GBP/EUR dipping to €1.1418 and GBP/USD sliding to $1.2380. GBP/CAD has stumbled to CA$1.6964, while GBP/AUD ticks up to AU$1.9101 and GBP/NZD jumps to NZ$2.0696.

Coming up, could a speech by European Central Bank (ECB) President Christine Lagarde inject some volatility into the euro today?

What’s been happening?

The pound was placed on the defensive yesterday as markets reacted to the UK’s softer-than-expected inflation figures.

The UK’s consumer price index reported both headline and core inflation cooled more than forecast in October, following a sharp fall in energy prices.

Sterling slumped in response to the inflation figures as they further undermined Bank of England (BoE) interest rate expectations.

The euro also faced headwinds on Wednesday after the European Commission published its latest Eurozone growth forecasts. The commission cut its 2023 forecast for the bloc from 0.8% to 0.6%.

In contrast, the US dollar was able to claw back some of its losses from earlier in the week. The uptick in USD was supported by the latest US retail sales figures. While October’s figures reported the first contraction in sales growth since March, the 0.1% decline was smaller than the 0.3% slump that had been forecast.

Also aiding the ‘greenback’s ascent was a sharp uptick in US Treasury yields.

What’s coming up?

Looking ahead, EUR investors are likely to look to a speech from ECB President Christine Lagarde for fresh impetus this morning. If Lagarde strikes a broadly dovish tone, the euro could weaken.

In the US the publication of last week’s initial jobless claims could weigh on the US dollar amid an expected uptick in new unemployment claims.

This will be followed by the latest US industrial production release, which could apply additional pressure if production declined in line with expectations last month.

Finally, in the absence of any notable UK data, the pound may struggle to find direction today.