Sterling falls ahead of Fed meeting as UK inflation holds steady

The pound sterling dipped 0.2 per cent to $1.2684 against the dollar on Wednesday, ahead of the Federal Reserve’s policy meeting later on Wednesday, as markets anticipate a less aggressive monetary easing path in the US.

British inflation figures for November matched expectations, with consumer prices rising 2.6 per cent annually, while services inflation remained at 5.0 per cent.

UK money markets showed little change, pricing 57 basis points of Bank of England (BoE) rate cuts by the end of 2025, up from 55 bps before the data release. Gilt yields eased, with 2-year yields down 3 bps to 4.41 per cent, and 10-year yields at 4.51 per cent, near a 16-year high.

Deutsche Bank’s chief UK economist, Sanjay Raja said the data supports the BoE’s cautious approach, though price pressures from employer National Insurance Contribution increases could emerge in early 2025. Analysts also noted rising private-sector wage growth as a factor for BoE hawks to consider.

Sterling weakened 0.23 per cent against the euro to 82.70 pence, with the euro benefiting from expectations of a greater yield divergence, as markets price deeper rate cuts for the BoE compared to the European Central Bank.

Attribution: Reuters

Subediting: M. S. Salama