Investing.com — Sterling traded slightly firmer on Wednesday while the euro was little changed, as the dollar’s soft patch met caution ahead of US September inflation data that ING expects to reinforce the greenback’s floor.
Sterling against the dollar was at 1.3264, up 0.11%, while the euro was at 1.1196, down 0.03%, as of 05:10 ET (09:10 GMT).
The dollar had a soft session on Tuesday “as stretched positioning and short-term overvaluation coincided with a recovery in global bonds,” Francesco Pesole, FX strategist at ING, wrote in a note.
“For this reason, we expect some dollar re-strengthening today,” he said, adding that a hot print “can reinforce expectations of further tightening down the road and, by extension, the dollar’s floor.”
Consensus is for headline CPI to rise 0.6% month-on-month and core 0.2%. ING’s macro team expects 0.7% and 0.3%.
Forecasts compiled ahead of the release see annual inflation accelerating to 3.6% from 3.4%, driven by energy, with gasoline seen up more than 7%.
New York Fed President John Williams, a dovish-leaning voice, said he still expects another hike this year but sees signs inflation will slow and does not foresee further tightening in 2027, in line with the median Dot Plot.
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Pesole said such explicit pushback against market expectations of three more hikes by June “has been uncommon.” Markets price a 20% chance of an October hike.
“For pricing to return above 50%… we probably need to see headline close to 1.0% MoM and/or core at 0.4% MoM today,” Pesole wrote.
The pound’s small gain looked dollar-led rather than driven by UK data, but Bank of England commentary kept rate expectations in focus.
BoE Chief Economist Huw Pill, who voted for a hike in September, said he was “a little bit more sceptical” of market pricing for four 25 bp increases over the next year. “Is four hikes appropriate over the next year?” he asked at a Citi event in Bangkok.
He added that a “risk of some self-sustaining momentum” in inflation had become clearer given the Gulf conflict. Governor Andrew Bailey said on Tuesday that “the longer this goes on, the harder it gets.” Markets see a November hike as near certain.
Pill’s remarks lean hawkish on the need to move but push back on the pace the market is pricing, so the paragraph frames them that way. It replaces the earlier Sterling paragraph, which said no UK catalyst had been identified. That note no longer applies.
