The latest Consumer Price Index (CPI) data will be released for October tomorrow and is expected to show a small drop from 2.2% to 2.0%. There has been some concern regarding inflation in the US over the past few months with fears there could be further falls moving forwards. The Federal Reserve are currently expected to raise interest rates again before the end of this year and some members of the committee think there will be another three next year.
However, if there is a fall in inflation the chances of the interest rate level moving towards the 2.5% level is unlikely in the immediate future. There will be some room for a poor reading following the disruption over the last few months from the two major hurricanes which hit the US in quick succession, stopping many people spending normally and this could have had an effect. But if lower inflation becomes a trend we may start to see a few swings in US Dollar strength.
The market has essentially priced in a US interest rate hike in December but any deviation from the plan could see instant market movements. The last time the GBP/USD exchange rate fell below 1.30 was the start of September and before the end of the year we might see that level once again.
UK troubles to weaken Sterling
In the UK Theresa May is under pressure from a vote of no confidence within the party, whilst the EU negotiating team are again playing hard ball in Brexit talks. There was optimism that come December talks will have advanced to a point the trade agreements will become the main topic but it’s still to be seen if we’re at that stage yet.
Sterling at the moment feels like it could be on the cusp of once again falling with uncertainty bubbling away no far from boiling point. If you’re looking to sell US Dollars and buy Sterling you may not be too far away from once again trading below the psychological 1.30 barrier.