Investing.com — Sterling fell against the dollar on Wednesday, while the euro also weakened, as stronger-than-expected U.S. core inflation data supported the greenback.
Sterling fell 0.42% against the dollar to 1.3195, while the euro dropped 0.71% to 1.1120, at 09:15 ET (12:15 GMT).
In a pre-release note, Francesco Pesole, FX strategist at ING, said hotter inflation could reinforce expectations of further monetary tightening and, in turn, support the dollar. He had expected some renewed dollar strength following the greenback’s weaker session on Tuesday.
U.S. consumer prices rose 0.6% in September after increasing 0.4% in August, while annual inflation accelerated to 3.7% from 3.4%. Both figures were in line with forecasts. Gasoline prices jumped 9.1% on the month.
Core prices rose 0.3% for a second consecutive month, above expectations for a 0.2% increase, while annual core inflation climbed to 2.6% from 2.4%, compared with forecasts of 2.5%. Shelter costs rose 0.4%.
Prior to the release, Jefferies said markets had priced in a 20% chance of an October Federal Reserve rate hike and a fully priced December increase. “It would take a significant upward surprise for the market to shift its pricing for October,” strategist Mohit Kumar wrote.
New York Fed President John Williams said he expected another rate hike this year but saw no further tightening in 2027, signalling a hawkish near-term outlook and a more dovish stance beyond that. Fed official Collins has also argued in favour of another increase. The next U.S. inflation report is due on November 10.
The pound’s decline appeared to be driven primarily by dollar strength rather than UK-specific factors. Bank of England Chief Economist Huw Pill, who voted for a rate hike in September, said he was “a little bit more sceptical” of market expectations for four 25-basis-point increases over the next year, although the “risk of some self-sustaining momentum” in inflation had become clearer.
BoE Governor Andrew Bailey said on Tuesday that “the longer this goes on, the harder it gets.” Markets viewed a November rate hike as almost certain.
Separately, the International Monetary Fund said Britain would need to communicate that departmental spending cuts were necessary to help fund higher defence expenditure. The annual cost of meeting the target of raising defence spending to 3% of GDP by 2030 was estimated at £11 billion ($14.6 billion).
