Sterling fell to its lowest level in two months on Wednesday after weaker-than-expected British inflation data suggested that the Bank of England might have more room to cut interest rates aggressively.
Meanwhile, the Euro reached a 10-week low ahead of an upcoming European Central Bank meeting, Reuters reports.
The Pound was down 0.65% against the dollar at $1.2988 at the time of writing, slipping below the $1.30 mark for the first time since 20th August, following data that revealed the annual consumer price inflation rate dropped to 1.7% in September from 2.2% in August.
This marked the lowest reading since April 2021 and fell short of the 1.9% forecast by a Reuters poll of economists. This development strengthened expectations for a Bank of England interest rate cut next month and increased the likelihood of another cut in December.
“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year,” stated ING FX strategist, Francesco Pesole.
“We think that has incidentally opened the door for a period of underperformance by Sterling,” he said, going on to add that they forecast the Pound will trade under $1.30 and the Euro above 84 pence.
The single currency was last up 0.6% against the Pound, trading at 83.80 pence.
Elsewhere, other currency movements were less pronounced, but the Euro fell an additional 0.1% against the Dollar to $1.0883, its lowest level since 2nd August.
This decline continues a trend observed in recent weeks, as traders priced out potential rate cuts from the Federal Reserve while also considering the possibility of a Dollar-positive election win by former President Donald Trump.
Furthermore, investors will be closely monitoring the European Central Bank's meeting on Thursday; however, if policymakers implement the anticipated 25 basis point rate cut and President Christine Lagarde avoids providing strong guidance on future rate expectations, the market's reaction could be limited.
In addition, traders currently assign a 92% chance of a 25-basis-point cut when the US Federal Reserve meets to decide on policy on 7th November, with an 8% likelihood of no change, according to CME Group's FedWatch Tool. A month ago, traders had estimated a greater than 29% chance of a larger, 50-basis-point reduction.