GBP: Knocked lower by dovish BOE remarks
GBPUSD pushed below the key 1.23 handle as BoE Chief Economist Huw Pill made a case for inflation slipping below 5% for the October print due next week and opening up the door for markets to price in more easing as he said that rate cuts from next summer looked reasonable. Recent polls have highlighted the steep cost-of-living crisis in the UK, with two-thirds of UK adults not looking to participate in Black Friday and Cyber Monday. This continues to deepen recession concerns for the UK economy, and threatens further downside for cable and other sterling crosses.
Speech from BOE Governor Bailey will be on watch today, but Fed Chair Powell could have a bigger focus. If he maintains a hawkish posturing, echoing what Kashkari said yesterday and keeps the door open for further tightening, then the Fed-BOE divergence will likely come into limelight. UK’s data docket is also full for Friday, with Q3 GDP particularly on watch. Consensus expects growth to slip into negative at -0.1% QoQ from 0.2% QoQ in Q2, which could signal the incoming technical recession. Market is currently only pricing in 50bps of rate cuts in the next one year, so dovish repricing risks could weigh on sterling in case data comes in weaker than expected.