The Pound Sterling slides below 1.2800 against the US Dollar (USD) in Tuesday’s North American session, the lowest level seen in almost three months. The GBP/USD pair weakens due to a slower UK job market and the strength in the US Dollar across the board.
The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, refreshes a four-month high above 105.70. The Greenback extends its upside trend generated by Donald Trump’s victory in the United States (US) presidential election as it looks increasingly likely that Republicans will control both the Senate and the House of Representatives when Trump takes office in January, according to projections from Decision Desk HQ.
Trump’s protectionist trade practices and his promise to lower corporate taxes are expected to boost inflationary pressures, which would force the Federal Reserve (Fed) to follow a more gradual policy-easing approach. In the December policy meeting, the Fed is expected to cut interest rates again by 25 basis points (bps) to 4.25%-4.50%, according to the CME FedWatch tool. Still, investors have recently pared back bets of such an outcome.
Meanwhile, investors await the US Consumer Price Index (CPI) data for October, which will be released on Wednesday, and commentary from a slew of Fed policymakers for fresh interest rate guidance. Economists expect the headline inflation to have grown by 2.6%, faster than 2.4% in September on year-on-year. In the same period, the core CPI – which excludes volatile food and energy prices – is expected to have risen steadily by 3.3%.
The impact of inflation is expected to be weak on the Fed monetary policy action in December unless there is a significant deviation from the consensus, as policymakers seem to be confident about inflation remaining on track to the bank’s target of 2%.
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