- The Pound bounces at 1.3585, and returns to 1.3525 but remains within a bearish channel from Last Friday’s highs.
- Investors are dialing down GBP short bets with July’s UK CPI data in focus.
- UK inflation is expected to have accelerated to a 3.7% yearly rate, the highest reading in almost two years.
The Pound is retracing some losses on Tuesday with the US Dollar pulling back from recent highs amid a moderately positive market sentiment, and investors looking at Wednesday’s UK CPI reading that might give further reasons to BoE hawks.
The GBP/USD pair has bounced up from intra-day lows at 1.3485 to reach 11.3525 at the moment of writing, but keeps trading within a bearish channel from last Friday’s highs, in a likely corrective reaction after a nearly 3% rally from August 1 lows, at 1.3145.
Concerns about higher inflation keep the Pound supported
Investors’ focus is on July’s UK inflation figures, which are expected to show an acceleration to a 3.7% yearly pace in the headline CPI, up from 3.6% in June and 3.4% in May, according to market forecasts.
Price pressures have been growing steadily since bottoming at 1.7% in September and are expected to hit a nearly two-year high in July. This is likely to strengthen the case for BoE hawks to oppose further rate cuts and provide additional support for the Pound.
The US Dollar, on the other side, remains depressed, following apparent advances towards a peace deal in Ukraine that have triggered a moderate risk appetite in an otherwise calm, holiday session. Investors keep one eye on the Jackson Hole Symposium, and especially on Fed Chairman Powell’s conference, to confirm market expectations of a rate cut in September.
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
Economic Indicator
Consumer Price Index (MoM)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is also the inflation measure used in the government’s target. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
