British Pound faces selling pressure even as UK CPI rise in line with estimates

The British Pound falls back from day’s high to near 209.15 after the UK CPI data repot release.
The UK CPI report showed that price pressures accelerated in line with expectations.
Investors expect the BoE to leave interest rates unchanged on Thursday.

Sagar Dua FXStreet

The British Pound (GBP) retreats from its day’s high of around 209.45 against the Japanese Yen (JPY) to near 209.15 after the release of the United Kingdom (UK) Consumer Price Index (CPI) report of August.

The British currency faces selling pressures even as the CPI report showed that prices pressures accelerated in line with expectations. The UK headline CPI arrives higher at 3.1% Year-on-Year (YoY), as expected, from 2.9% in July. The CPI – which excludes the volatile components of food, energy, alcohol and tobacco – grew in line with estimates and the previous reading of 2.6% YoY.

On a monthly basis, the headline inflation rose at an expected pace of 0.5%, faster than the previous reading of 0.3%.

A further acceleration in UK inflationary pressures is expected to prompt expectations of an interest rate hike by the Bank of England (BoE) in the near term.

Meanwhile, the BoE is all set to announce the September’s monetary policy decision on Thursday.

BoE seen on hold again

Strategists at Brown Brothers Harriman (BBH) note that the BoE is “widely expected to keep the policy rate at 3.75% for a sixth straight meeting” at Thursday’s decision. They anticipate “another 6-3 vote,” with Megan Greene, Catherine L Mann and Huw Pill “backing a 25bps hike,” even as the majority opts to stay on hold.

On the Tokyo front, investors await the Bank of Japan’s (BoJ) interest rate decision on Friday. The BoJ is highly anticipated to hike interest rates by 25 basis points (bps) to 1.25%. On the same day, financial markets will also pay attention to the National CPI data for August, which will be published before the BoJ’s policy decision.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

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Fed decision in focus

Starting with the most important, the Fed decision. Heading into the event, data showed a rather punchy US August jobs report, which, you will likely recall, triggered a hawkish Fed rate repricing in rates markets. However, the recent US August CPI print mattered more.

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