NEW YORK: The pound fell on Wednesday after British inflation in September undershot forecasts, while the US dollar fell against the Japanese yen. The British pound was the weakest major currency on Wednesday after inflation unexpectedly held at 3.8 percent, undershooting expectations of economists and of the Bank of England.
Sterling fell by as much as 0.5 percent against the dollar. It was last down 0.17 percent at 1.335.
“When the BoE started sending hawkish signals recently, they had this out-of-consensus view that inflation would prove stronger than what markets or economists were expecting and it’s not really proving to be the case at the moment,” said Francesco Pesole, FX analyst at ING.
Investors are pricing in about a 75 percent chance that the Bank lowers interest rates by year-end, up from around a 46 percent chance before the data.
“Overall, our economists view today’s data as providing meaningful and genuine softer inflation news, and as raising the risk that the BoE’s next rate cut is earlier than their February meeting base-case,” Goldman Sachs analysts said in a research note.
The US dollar was last 0.05 percent weaker at 151.865 yen. Against the dollar, the yen hit a one-week low on Tuesday as sources told Reuters that new Prime Minister Sanae Takaichi is preparing an economic stimulus package likely to exceed last year’s 13.9 trillion yen (USD92.19 billion) to help households tackle inflation.
The yen has lost 2.5 percent this month as Takaichi jostled to become Japan’s prime minister, marking its biggest monthly decline against the dollar since July, as investors anticipated expansionary fiscal policy and a testy relationship with Japan’s central bank would weigh on the currency.
“Takaichi’s first statements as prime minister suggest she wants to calm markets and not exacerbate any weakness in the yen for the moment,” ING’s Pesole said.
The dollar index, which measures the dollar’s strength against a basket of six currencies, was last trading at 98.932, down 0.044 percent after three consecutive days of gains. President Donald Trump on Tuesday rebuffed a request by leading Democratic lawmakers to meet until the three-week-old US government shutdown ends.
The standoff complicates the task facing the Federal Reserve at its meeting on October 29. But the US central bank is still expected to lower its key interest rate by 25 basis points next week and again in December, according to a Reuters poll of economists who remain deeply divided on where rates will be by the end of next year.
Fed funds futures imply a 97 percent probability of a 25-basis-point cut to interest rates, according to LSEG data. The euro was up 0.03 percent at USD1.16 as a planned summit between Trump and Russian President Vladimir Putin was put on hold after Russia rejected an immediate ceasefire in Ukraine.