UK inflation unchanged at 3.8%, Pound shrugs

Kenny Fisher MarketPulse

The British pound is unchanged on Wednesday, trading at 1.3645 in the European sesison.

UK inflation remains entrenched

Today's inflation report was a dour reminder that UK inflation remains entrenched. CPI for August was unchanged at 3.8% y/y, matching the consensus and its highest level since January 2024. Airfares decreased but this was offset by food and petrol prices. Monthly, CPI rose 0.3%, up from 0.1% in July and matching the consensus.

Core CPI, which excludes volatile items such as food and energy, eased to 3.6% from 3.8%. Monthly, core CPI ticked up to 0.3% from 0.2%.

The inflation report comes just a day before the Bank of England announces its rate decision. Inflation is almost double the BoE's target of 2% and today's release likely means that the BoE will not reduce rates before 2026. The BoE cut rates by a quarter-point in August to 4.0% but will be hard pressed to follow up with additional cuts due unless inflation falls lower.

The inflation data is bad news for Finance Minister Rachel Reeves. Food inflation has risen for five consecutive months and that will put consumers in a sour mood. Reeves will deliver a budget in November and may have to raise taxes to balance the books, which is sure to be an unpopular move.

Fed widely expected to lower rates

The Federal Reserve is virtually certain to lower rates at today's meeting. That would be a significant move as the Fed last cut rates in December 2024. With the rate decision virtually a given, investors will be looking for some clues as to whether the Fed is looking at further rates cuts before the end of the year.

GBP/USD technical

GBPUSD is testing support at 1.3643. This is followed by support at 1.3638 and 1.3634.
1.3647 and 1.3652 are the next resistance lines.

Author

Kenny Fisher

MarketPulse

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD posts modest gains above 1.1650 amid weaker US Dollar

EUR/USD posts modest gains above 1.1650 in the European session on Monday. The prospect of a US Federal Reserve rate cut at its December meeting on Wednesday keeps the US Dollar undermined across the board, supporting the pair amid strong German Industrial Production data. Eurozone Sentix Investor Confidence data is next in focus.

GBP/USD consolidates above 1.3300 as traders await Fed rate decision

GBP/USD kicks off the new week on a subdued note and oscillates in a narrow trading band above 1.3300 in European trading on Monday. The pair, however, remains close to the highest level since October 22, with bulls awaiting a sustained strength on a potential dovish Fed verdict due later this Wednesday.

Gold holds firm above $4,200; awaits Fed rate decision on Wednesday before the next leg up

Gold sticks to its modest intraday gains through the early European session, though it lacks bullish conviction and remains confined in a one-week-old trading range. The growing acceptance that the US Federal Reserve will lower borrowing costs again this week keeps the US Dollar depressed near a one-month low and acts as a tailwind for the non-yielding yellow metal.

Bitcoin and Ethereum aim for breakouts as Ripple holds at $2

Bitcoin, Ethereum, and Ripple record a minor recovery on Monday, starting the week on a positive note. The retail demand for major cryptocurrencies remains strong despite outflows from Bitcoin and Ethereum Exchange Traded Funds.

The Silver disconnection is real

Silver just hit a new all-time high. Neither did gold, nor mining stocks. They all reversed on an intraday basis, but silver’s move to new highs makes it still bullish overall, while the almost complete reversals in gold and miners make the latter technically bearish.