- Following the release of the UK’s July CPI report, the pound has strengthened against its counterparts.
- Both the overall and core CPI in the UK showed an increase of 3.8% year-on-year.
- Market participants are now anticipating the UK Flash PMI for August, along with Powell’s address at the Jackson Hole Symposium.
The pound sterling (GBP) saw significant buying interest on Wednesday, buoyed by hotter-than-expected Consumer Price Index (CPI) data for July. The National Bureau of Statistics (ONS) announced that headline inflation increased at an annual rate of 3.8%, which outpaced forecasts of 3.7% and June’s 3.6%.
Core CPI, which omits volatile categories like food and energy, also rose at a rate of 3.8% yearly, exceeding both expectations and the previous 3.7%. Although headline CPI for the month increased by just 0.1%, it was anticipated to contract instead.
Notably, the service sector inflation, which the Bank of England (BOE) closely monitors, has accelerated, now at 5.0% annually, up from 4.7% previously.
During a recent policy meeting, BOE Governor Andrew Bailey emphasized that surging food and energy costs may be shaping consumers’ inflation expectations. The BOE also upped its CPI forecast from 2.4% to 2.7% last year.
A Reuters poll conducted between August 13 and 19 suggested that the BOE might only decrease interest rates once for the remainder of the year. At the August policy meeting, the BOE lowered its rate by 25 basis points (BPS) to 4%, but support for this decision was limited.
Daily Digest Market Mover: Pound Sterling Rises Against US Dollar
- Pound Sterling rebounded to nearly 1.3500 against the US dollar (USD) following the release of the July CPI report. Meanwhile, the US Dollar Index (DXY), which measures the dollar against six major currencies, remains relatively steady during the European session after achieving new weekly highs near 98.00.
- The US dollar remains resilient, as investors anticipate a reiterated restrictive monetary policy from Federal Reserve Chair Jerome Powell during his upcoming speech at the Jackson Hole symposium.
- Powell seems to maintain that there’s no immediate need for monetary policy adjustments, pointing out that US central banks are still assessing the economic impact of President Donald Trump’s tariff strategies.
- The latest US CPI report for July indicated a limited effect on inflation due to tariffs. However, the producer price index (PPI) report for the same month suggests that businesses are beginning to pass the costs of new import tariffs on to consumers.
- The CME FedWatch tool indicates an approximately 85% probability that the Fed will cut rates by 25 basis points (BPS) down to 4.00%-4.25% in September.
- Investors will also pay attention to preliminary UK and US S&P Global Purchasing Managers’ Index (PMI) data set to be released in August.
- Globally, there are hopes for a summit involving US President Trump, Russian President Vladimir Putin, and Ukrainian President Volodymyr Zelensky to discuss the ongoing situation in Ukraine. Reports indicate that leaders may convene in Budapest to talk about potential concessions regarding a ceasefire.
Technical Analysis: Pound Sterling Receives Interest Near EMA Bids at 20 Days
Pound Sterling has bounced back sharply after a recent correction near 1.3465 around the 20-day exponential moving average (EMA), suggesting renewed buying interest at lower price levels.
The 14-day relative strength index (RSI) is pushing upwards towards 60.00. If it surpasses that level, we might see fresh bullish momentum.
On the downside, the recent low from August 11 at 1.3400 serves as a key support zone, while the peak from July 1, close to 1.3790, acts as a significant resistance barrier.
