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GBP/USD falls as UK inflation cools 

• UK CPI eased to 4.6% YoY in October from 6.7% 
• US CPI cooled to 3.2% from 3.7% 
• GBP/USD falls away from 1.25 

The pound is falling after UK inflation cooled by more than expected, fueling bets that the BoE could be done raising interest rates. 

UK CPI eased to 4.6% YoY in October from 6.7% in September, marking the largest drop in inflation since 1992 and taking inflation to the lowest level since October 2021. The biggest contributor was from lower household energy costs after the Ofgen price cap fell by 23% for the year to October as gas prices fell.  

Core and services inflation, which are both closely watched by the BoE for signs of underlying inflation, came in cooler than forecast, adding to bets that the BoE may have concluded its hiking cycle. 

The data comes amid similar speculation in the US, where traders also erased expectations of another interest rate hike by the Federal Reserve. 

The US dollar has fallen to a two-month low against its major peers following yesterday's inflation numbers, which eased to 3.2% YoY. The market no longer expects the Fed to hike interest rates again this year, with the CME Fed watch tool pricing in a 95% probability of the Fed leaving interest rates on hold in December. The first rate cut from the Fed is expected in June next year. 

Attention will now turn to US PPI, which is expected to rise 0.1% MoM in October after rising 0.5% in September. Cooling PPI bodes well for further declines in consumer prices.  

US retail sales are expected to decline 0.3% MoM in October after rising 0.7% in September. The US consumer has proved resilient despite aggressive rate hikes from the Fed. Signs of household spending slowing could add to evidence the Fed won't need to raise interest rates further. 
 

GBP/USD forecast – technical analysis 

GBP/USD rebounded off the 20 SMA and last week’s low around 1.22, rising above the 200 SMA, suggesting demand has turned upbeat, before running into resistance at 1.25 the psychological level and the 100 SMA. The RSI supports further gains while it remains out of overbought territory. 

Buyers will look to overcome 1.25 to bring 1.26 into play. 

Sellers will need to break down the 200 sma at 1.2440 and 1.2340 at the October high. 

(Click on image to enlarge)

DAX rises on optimism that central banks are done hiking rates 

• US inflation fuels bets that the Fed is done hiking 
• German ZEW economic sentiment rose for a fourth month 
• DAX tests 200 SMA resistance 

The DAX is set to open higher, extending gains from yesterday when weak US Inflation and stronger than-forecast German ZEW economic sentiment boosted sentiment, lifting the DAX to a two-month high. 

German Investor morale improved more than expected in November, entering positive territory for the first time since April. The data rose for a fourth straight month, suggesting that the economic situation in Germany will improve over the coming six months. This offset data showing that the eurozone economy contracted -0.1% in Q3. 

Today, German wholesale prices cooled -0.7% MoM in October after rising 0.2% in September. The data adds to expectations that inflationary pressures are falling, which supports the view that the ECB may be at the end of its rate hiking cycle. 

Data from China, a key trading partner for Germany was also upbeat, with industrial production and retail sales coming in ahead of forecasts. 

Looking ahead, attention will be on eurozone trade data and industrial production figures for September. Investors will be looking for signs of a pickup in demand.  

Economists project that the eurozone trade surplus will widen from €6.7 to €22.3 billion in September. 

In the US session, retail sales and producer prices will be in the spotlight. A larger-than-expected fall in sales could be a case of bad news is good news for the market, fueling bets that the Federal Reserve has reached the end of its hiking cycle.  
 

DAX forecast – technical analysis 

The DAX is extending its recovery from 14600, rising above the multi-month falling trendline and is testing resistance at 16600, the 200 SMA. A rise above the 200 SMA would be significant and opens the door to 16000. 

Failure to rise above the 200 SMA could see sellers test support at 15500 before exposing the 50 sma at 15300. 

(Click on image to enlarge)

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