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Employment and inflation double hit, pound plummets, interest rate cut storm countdown
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Hello everyone, today XM Forex will bring you "[XM official website]: double blow to employment and inflation, pound leakage, countdown to interest rate cut storm". Hope this helps you! The original content is as follows:
On Wednesday (December 17) during the Asia-Europe period, the UK released a number of price indexes. The data showed that the UK's overall inflation has significantly eased, increasing market expectations for an interest rate cut by the Bank of England. The pound quickly fell 60 points against the US dollar by about 0.5% during the session, and is currently trading around 1.3326.
The pound has had a good instant response to the data recently. Tuesday's higher-than-expected PMI caused the pound to appreciate sharply against the euro. Although today's gains have all been given back, you can pay attention to the performance of the US CPI data in the future. The obvious easing of British inflation has set the tone for the short-term trend of the pound.
Inflation has cooled down more than expected, and the logic of interest rate cuts has been implemented directly
The overall CPI growth rate in the UK in November dropped from 3.6% in October to 3.2%, significantly lower than the 3.5% expected by the market. It has shown a slowdown for two consecutive months, marking a further clear trend for price pressures to converge towards the 2% policy target.
The core CPI (excluding volatile items such as food and energy) fell to 3.2% simultaneously, lower than expected and the previous value. Inflation in the service industry monitored by the Bank of England also fell slightly from 4.5% to 4.4%, and the stickiness of inflation continued to weaken.
From a trading perspective, the weak inflation data directly strengthened the rationality of the Bank of England's interest rate cut. The market quickly adjusted the pricing of the timing of the interest rate cut. The previous differences on "when to start the interest rate cut" gradually converged and turned to the short-term game of Thursday's policy meeting, which became the core factor driving changes in the flow of sterling funds. In addition, the CPI fell by 0.2% month-on-month (expected to be flat), and the downward pressure on short-term inflation exceeded expectations, further weakening the pound's interest rate support basis.
Weak employment adds strength, and interest rate cuts shift from "expected" to "necessary"
p>The British employment data for the three months to October and inflation released this week formed a "double weak" www.xmtraders.combination. The ILO unemployment rate rose to 5.1%, a new high in the past five years. The weakness of the job market has intensified concerns about economic downturn.
For sterling trading, the simultaneous weakening of employment and inflation has www.xmtraders.completely shattered the previous market expectations for "the Bank of England to stick to the hawks". Although the market had generally expected an interest rate cut, it was still concerned that the resilience of the job market might support the policy to remain unchanged. However, the current data clearly shows that the fundamentals of the British economy are under pressure, and interest rate cuts have changed from "optional policies" to "necessary measures."
This change in expectations driven by fundamentals triggered speculative position adjustments in sterling, further consolidating the dominance of interest rate cut logic in trading.
The trend of the U.S. dollar is indirectly affected, and the pound is affected by dual logic
Although the U.S. non-farm payrolls data from October to November showed a weak labor market, the U.S. dollar index did not continue to weaken. Instead, it rebounded from a low level, which had an indirect impact on the pound against the U.S. dollar. The core reason for the dollar's rebound is that the market believes that the U.S. employment data is distorted by the government shutdown, and the authenticity of the data is doubtful. Therefore, expectations of a Federal Reserve interest rate cut have not been further fueled, but instead triggered short covering.
At the same time, the overall weak PMI data in Europe is also good for the US dollar. In Japan, there is news that the Bank of Japan may suspend interest rate hikes. For sterling trading, this means that its trend is not only driven by the internal logic of its own rising interest rate cut expectations, but also needs to take into account the external impact of the US dollar trend. Under the intertwining of dual logics, short-term fluctuations in sterling are more dominated by the difference in policy expectations rather than a single direction.
The key to the subsequent trend of the U.S. dollar depends on the performance of U.S. CPI data. If U.S. inflation cools down simultaneously, it may ease the external pressure on the pound; conversely, if inflation becomes stickier than expected, a stronger U.S. dollar will further intensify the adjustment pressure on the pound.
Policy implementation and data game dominate the short-term trading window
For GBP trading, the next 48 hours are the key policy and data window period, focusing on two major events.
The first is the Bank of England monetary policy meeting on Thursday. The market has fully priced in part of the interest rate cut expectations. The interest rate cut action and forward guidance in the policy statement will directly determine the short-term direction of the pound - whether it is a direct interest rate cut, keeping interest rates unchanged but releasing a dovish signal, or unexpectedly maintaining a hawkish stance, all will lead to a market with poor expectations.
The second is the simultaneous release of US CPI data for November. This data will be indirectly transmitted to the pound by affecting the trend of the US dollar, becoming an important variable for short-term fluctuations.
Atlanta Fed President Bostic clearly warned that further cuts in the federal funds rate will push monetary policy into a loose range, which may aggravate already high inflation and lead to a decoupling of business and consumer inflation expectations.
This statement strengthens the Fed's "cautious interest rate cut" stance, which means that the pace of interest rate cuts by the Fed and the Bank of England may be different in the future.into suppression.
Summary and technical analysis:
The "double weak" www.xmtraders.combination of British inflation and employment data has www.xmtraders.completely shifted the core driver of the pound's trend to the Bank of England's interest rate cut policy game.
In the short term, weak fundamentals and rising policy expectations jointly dominate the trend of the pound, while the indirect impact of the US dollar trend increases the www.xmtraders.complexity of short-term fluctuations;
Follow-up transactions need to focus on Thursday's Bank of England policy statement and US CPI data.
The British pound against the U.S. dollar rose to a key pressure level near 1.3452 and then started a correction. The exchange rate has now fallen below the upward trend line and the key support level of 1.3344. Currently, 1.3344 is the first pressure level for the rebound. If the rebound cannot be exceeded, the pound may turn into a downward trend. As a currency that accounts for 11.9% of the U.S. dollar index, this is also conducive to the rebound of the U.S. dollar index.
The above content is all about "[XM official website]: Double critical hit of employment and inflation, wild pound leakage, countdown to interest rate cut storm". It is carefully www.xmtraders.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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