The British Pound plunged below the critical 1.3400 support level against the U.S. Dollar on Tuesday, as surprisingly hot U.S. inflation data ignited fears of a more aggressive Federal Reserve rate hike path.
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.4% in October, exceeding market expectations. Crucially, the core CPI, which excludes volatile food and energy, increased by 0.3%, also surpassing forecasts. The data suggests inflationary pressures in the U.S. remain stubborn and are broadening, directly challenging the narrative of a cooling economy.
In immediate response, financial markets rapidly recalibrated their expectations for the Fed’s December meeting. While a 25-basis-point hike was previously seen as near-certain, bets on a larger, 50-basis-point move surged. Federal Reserve Governor Christopher Waller had previously stated he would consider a half-point increase if core CPI met or exceeded the 0.3% threshold. The print met that bar precisely.
The prospect of higher U.S. interest rates sent U.S. Treasury yields and the U.S. Dollar Index (DXY) soaring. Conversely, sterling faced intense selling pressure, dropping over 0.6% on the day to trade as low as 1.3356. The breach of the 1.3400 mark, a key psychological and technical floor, signals that the pound may face further downside in the near term. Investors will now be looking to upcoming speeches by other Fed officials for confirmation of this hawkish shift.
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