(Alexander Kuptsikevich – FxPro Financial Services Limited)
The inflation report marathon continues, and it was the UK’s turn this morning. Traditionally, the consumer price change figures attracted the most attention. For the month, they rose by 0.5% (slightly less than the 0.6% expected), and annual inflation fell from 10.1% to 9.9%, slightly weaker than the 10.0% expected.
As previously with the US data, core inflation exceeded expectations, reaching 6.3% – a new all-time high. However, there are several signs that the inflation wave has subsided.
Manufacturers reduced their selling prices for the first time in almost two years. The reduction was a nominal 0.1%, but we should expect more. This indicator’s annual rate of increase fell from 17.1% to 16.1%.
Producer input prices (an even earlier indicator for inflation) lost 1.2% in August – the largest since April 2020. By the same month a year earlier, growth had slowed to 20.5% compared with 22.6% in July and 24.1% in June.
It is also worth remembering that the effect of the high base (there were already higher price growth rates at this time a year ago) will weigh on the annual inflation figure.
After we saw a sharp rise in the dollar on hot inflation from the US, one could have expected a new wave of pressure on the Pound on weak data. But that did not happen, for which there is a logical explanation. The news in the US caused a revision of rate expectations, but this is not happening in the UK markets. Lower inflation puts less pressure on Sterling’s purchasing power. In the longer term, this will help reduce the shock to the economy from tightening monetary policy, which is positive for the currency.
GBP/USD Forecast: Pound could extend correction above 1.1550
(Eren Sengezer – FXStreet)
– GBP/USD has managed to erase a portion of Tuesday’s losses.
– Core inflation in the UK edged higher to 6.3% on a yearly basis in August.
– Wall Street’s main indexes remain on track to open higher.
GBP/USD has gathered recovery momentum and climbed toward 1.1550 after having declined below 1.1500 earlier in the day. The pair needs to clear 1.1550 in order to attract bulls.
The data published by the UK’s Office for National Statistics (ONS) reported on Wednesday that the annual Consumer Price Index (CPI) declined to 9.9% in August from 10.1% in July. The Core CPI, however, which excludes volatile food and energy prices, rose to 6.3% from 6.2%.
According to Reuters, UK interest rate futures point to a 79% chance that the Bank of England will raise its policy rate by 75 basis points to 2.5% on September 22 after the inflation data.
On Tuesday, hot inflation figures from the US triggered an impressive rally in the US Dollar Index (DXY) and forced GBP/USD to suffer large losses.
Early Wednesday, US stock index futures are up between 0.5% and 0.6% on the day. In case risk flows start to dominate the financial markets in the second half of the day, the greenback could face additional selling pressure. At the time of press, the DXY was down 0.2% on the day at 109.60.
The US economic docket will feature the August Producer Price Index (PPI) data. On a yearly basis, PPI is forecast to decline to 8.8% from 9.8% in July. Although investors are unlikely to overreact to producer inflation data, an unexpected increase in PPI could help the dollar regather strength and limit GBP/USD’s upside.
GBP/USD Technical Analysis
On the four-hour chart, the Relative Strength Index (RSI) indicator rose toward 50 during the European session, suggesting that sellers are moving to the sidelines. GBP/USD is trading within a touching distance of 1.1550, where the 50-period SMA is located. In case the pair flips that level into support, it could push higher toward 1.1600 (Fibonacci 23.6% retracement of the latest downtrend, 20-period SMA), 1.1640 (100-period SMA) and 1.1700 (psychological level).
On the downside, 1.1500 (psychological level) aligns as key support before 1.1450 (static level) and 1.1400 (end-point of the downtrend, psychological level).