Breaking: UK CPI inflation eases to 3.2% YoY in November vs. 3.5% forecast

GBP/USD reaction to the UK CPI inflation data

The Pound Sterling (GBP) attracts some sellers in an immediate reaction to the UK CPI inflation data. At the time of writing, the GBP/USD pair is trading 0.59% lower on the day to trade at 1.3345.

Pound Sterling Price This week

The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.28%	0.27%	-0.30%	0.08%	0.52%	0.53%	0.28%
EUR	-0.28%		0.00%	-0.56%	-0.21%	0.26%	0.25%	-0.00%
GBP	-0.27%	-0.00%		-0.46%	-0.19%	0.26%	0.25%	-0.03%
JPY	0.30%	0.56%	0.46%		0.36%	0.81%	0.80%	0.75%
CAD	-0.08%	0.21%	0.19%	-0.36%		0.44%	0.45%	0.32%
AUD	-0.52%	-0.26%	-0.26%	-0.81%	-0.44%		-0.01%	-0.28%
NZD	-0.53%	-0.25%	-0.25%	-0.80%	-0.45%	0.00%		-0.28%
CHF	-0.28%	0.00%	0.03%	-0.75%	-0.32%	0.28%	0.28%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

This section below was published at 05:27 GMT as a preview of the UK Consumer Price Index (CPI) inflation data.

The UK CPI Overview

The United Kingdom (UK) Office for National Statistics (ONS) will publish the highly relevant Consumer Price Index (CPI) data for November on Wednesday at 07:00 GMT.

The UK headline Consumer Price Index is forecast to have eased to a 3.5% year-over-year (YoY) in November from the 3.6% seen in October. Meanwhile, Monthly inflation is expected to be flat at 0% after rising 0.4% in October.

The UK core CPI, considered more relevant for the central bank, as it strips off the seasonal impact of food and energy prices, is expected to remain consistent at a 3.4% YoY rise in November.

How could the UK CPI affect GBP/USD?

GBP/USD is likely to stay subdued if UK CPI meets expectations. However, any upside surprise could cap losses by tempering dovish sentiment ahead of the Bank of England’s (BoE) policy decision on Thursday. The BoE is widely expected to cut rates by 25 basis points to 3.75%, the lowest since 2022, as rising unemployment and economic stagnation ease inflation pressures. Traders will also observe UK Retail Sales and PPI Core Output data.

The GBP/USD pair struggles as the US Dollar (USD) advances after mixed US labor market data for November did little to reinforce expectations of additional Federal Reserve rate cuts. The CME FedWatch tool suggests that Fed funds futures are pricing an implied 74.4% chance of a hold in rates at the US central bank's next meeting in January, up from nearly 70% a week ago.

Technically, the GBP/USD pair is trading around 1.3390 at the time of writing. Daily chart analysis points to a sustained bullish bias, with the pair holding within an ascending channel and the 14-day RSI remaining above 50. The pair may explore the resistance region around the 13-week high of 1.3536. On the downside, the immediate support lies at the nine-day Exponential Moving Average (EMA) of 1.3662, followed by the psychological level of 1.3300, aligned with the 50-day EMA at 1.3295.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

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