The Pound Sterling (GBP) advanced against major currencies during Wednesday’s London session, buoyed by unexpectedly high UK inflation figures for August. The Office for National Statistics (ONS) reported a core Consumer Price Index (CPI) rise of 3.6%, surpassing the 3.5% forecast and up from 3.3% in July. This metric, which excludes volatile items such as food, energy, and tobacco, reflects persistent inflationary pressures.
Services inflation, a key metric for Bank of England (BoE) policymakers, accelerated to 5.6% from 5.2% in July. This increase could prompt traders to reconsider expectations of an additional interest rate cut by the BoE later this year.
Headline inflation also rose by 0.3% month-on-month and 2.2% year-on-year, aligning with analysts’ predictions.
Looking ahead, market attention will shift to the BoE’s monetary policy announcement scheduled for Thursday. Prior to the inflation report, markets anticipated the BoE would hold rates steady at 5%. However, the August data suggesting persistent inflation may lead to increased expectations that rates will remain unchanged through the end of the year.
Daily Digest: Pound Sterling Strengthens Ahead of Fed Decision
Following the release of robust UK inflation data, the Pound Sterling climbed to near 1.3170 against the US Dollar (USD). The GBP/USD pair is testing immediate resistance at 1.3200, with volatility expected as the Federal Reserve (Fed) is set to announce its monetary policy decision at 18:00 GMT.
The CME FedWatch tool indicates that the Fed is likely to begin reducing interest rates, marking its first rate cut in over four years. Market speculation centers on whether the Fed will opt for a 50 basis point (bps) cut, with current futures pricing suggesting a 65% probability, compared to a 35% chance for a 25 bps reduction. Recent comments from Fed officials suggest a focus on labor market conditions over inflation, hinting at a shift towards policy normalization.
In addition to the Fed’s rate decision, investors will scrutinize the Fed’s dot plot, economic projections, and a press conference by Fed Chair Jerome Powell. The dot plot will provide insights into policymakers’ medium- and long-term rate forecasts.
Technical Analysis: GBP/USD Targets 1.3200
The Pound Sterling is nearing the 1.3200 level against the US Dollar, supported by its position above the 20-day Exponential Moving Average (EMA) near 1.3100. The GBP/USD pair recently recovered from a dip, maintaining an upward trajectory since breaking out from the trendline established at the December 28, 2023, high of 1.2828.
The 14-day Relative Strength Index (RSI) is around 60.00, suggesting potential for further bullish momentum if it remains at this level.
On the upside, resistance levels include the August 27 high of 1.3266 and the psychological mark of 1.3500. Key support is seen at the psychological level of 1.3000.
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