The pound surged after a spate of weak US economic data spurred speculation inflation is peaking and policy makers across the world are nearing the end of their hiking cycles.
(Bloomberg) — The pound surged after a spate of weak US economic data spurred speculation inflation is peaking and policy makers across the world are nearing the end of their hiking cycles.
Sterling rose for a second day, adding as much as 1.2% to $1.2436 — just shy of its strongest level since June. The move gathered pace after US retail sales, producer prices and industrial production data all came in weaker than expected.
The prospect of a slowdown in the world’s largest economy suggests the Federal Reserve can afford to temper its pace of rate hikes. That’s weakening the dollar and lifting currencies such as the pound, which came under pressure when the US tightening drive was in full swing. Sterling tumbled to near parity against the greenback in September amid concerns the government’s fiscal plans were unsustainable.
“For the first time in a long while we turned positive on the pound,” said George Saravelos, Deutsche Bank AG’s head of foreign-exchange research. “The policy mix finally looks more favorable with high real rates and a much improved external balance picture compared to September.”
Adding to the positive move were UK inflation data out earlier Wednesday, which showed core prices held steady in December. Rate-hike wagers were relatively unchanged, according to swaps tied to policy meeting dates. Traders added up to four basis points of tightening through this year.
The market now sees the Bank of England’s rate peaking at 4.53% in August from 3.5% currently. Policy makers next announce policy on Feb. 2, where a half-point hike is almost fully priced. Gilts rallied along with all other major bond markets, with the 10-year yield falling as much as 11 basis points.
–With assistance from James Hirai.
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