GBPUSD recovers to multi-month highs, with eyes on 1.1800

• Sterling extended gains towards 1.1790 after a lackluster US inflation report.
• The dollar is plummeting, as the Dollar Index shows, falling 1.20% to below 107,000.
• Consumer sentiment in the United States worsened as inflation expectations rose.

The British pound rose in the American session, after a softer inflation report in the United States, which increased speculation that the Federal Reserve could raise rates at a slower pace. In addition, Covid-19 restrictions in China were relaxed, a sign that could strengthen the world’s second largest economy. At the time of this writing, GBPUSD is trading at 1.1795., up 0.65% from its opening price.

Wall Street is holding on to Thursday’s gains, reflecting optimistic sentiment. The University of Michigan (UoM) Consumer Sentiment for November fell to its lowest level in four months, from 59.5 to 54.7, while inflation expectations rose. Americans expect inflation in one year to rise to 5.1%, and in five to ten years, consumers expect inflation to peak at 3%. Joanne Hsu, director of the survey, said: “Continuing uncertainty about inflation expectations suggests that such a foothold in the future is still possible.”

Aside from this, the latest US Consumer Price Index (CPI) report continues to weigh on the dollar as October’s headline and core CPI fell below expectations. Therefore, speculation increased that the Federal Reserve would raise rates to a lesser extent. A reflection of this is the Fed’s CMEWatchTool, which shows that traders expect the Fed to hike rates by 50 basis points at its December meeting, as the chances stand at 85.4%, unchanged from Thursday. .

Separately, several Federal Reserve officials commented that it was “appropriate” to slow the pace of interest rate hikes. However, most of them commented that the Fed is still tightening monetary policy, with Dallas Fed President Lorie Logan saying “a slower pace should not be taken as easier policy.”

Meanwhile, the dollar index, a gauge of the dollar’s value against a basket of peers, falls more than 1%, below the 107,000 mark, for the first time since August 18, a tailwind for the GBPUSD.

On the other hand, in the United Kingdom, the Gross Domestic Product (GDP) for the third quarter contracted more than expected in September, indicating the beginning of a prolonged recession projected by the Bank of England (BoE). British GDP fell 0.6% between August and September, more than the 0.4% contraction estimated by analysts.

The latest data would set a bumpy backdrop for new Chancellor Jeremy Hunt, who is expected to tighten fiscal policy as the UK battles inflationary pressures, which have been in the market for 40 years. Rishi Sunak’s budget calls for tax increases and public spending cuts of up to 55 billion pounds a year.

Crossing the wires lately, US Treasury Secretary and former Federal Reserve Chair Janet Yellen said the October inflation reading was positive. However, she warned that the core CPI was lower, but house prices remain high.

GBPUSD Key Technical Levels