The British Pound (GBP) is showing some erratic behavior against other currencies but is largely steady following the release of September’s stronger-than-anticipated Consumer Price Index (CPI) data from the United Kingdom. In relation to the Japanese Yen (JPY), the GBP is hovering just about flat at around 211.45.
According to the Office for National Statistics (ONS), the headline CPI rose by 3.5% Year-on-Year (YoY), exceeding expectations of 3.4% and the August figure of 3.1%. Additionally, the core CPI – which omits fluctuating components like food, energy, alcohol, and tobacco – also showed an increase of 2.8% YoY, compared to forecasts of 2.7% and the last release of 2.6%.
Month-on-month, inflation climbed by 0.4%, surpassing anticipated growth of 0.3% but slowing down from the previous month’s increase of 0.5%.
On Tuesday, labor market statistics for the three months ending in August also outperformed projections. This combination of positive job data and rising CPI figures is likely to heighten expectations for an interest rate increase by the Bank of England (BoE) during its upcoming policy meeting in November. Up to this point, the BoE has maintained steady interest rates at 3.75% throughout the year.
Megan Greene, a member of the BoE Monetary Policy Committee (MPC), highlighted on Tuesday the potential for increased inflation risks, suggesting that second-round inflation impacts could begin to unfold.
BoE’s Greene points out wage disinflation stagnation, sustaining GBP rate hike risks
Greene received a score of 7.4/10 on the FXS Speechtracker, which aligns with her historical average, indicating a consistent tone rather than an escalation in her statements. She emphasized that wage disinflation has plateaued at levels inconsistent with the 2% inflation target, coupled with a belief that the policy should actively address potential second-round effects, suggesting a hawkish stance regarding GBP.
Greene’s concern that the likelihood of second-round inflation effects is greater than previously thought—despite forward-looking data indicating that pay growth is closer to 3.5%—bolsters the argument for maintaining strict policy measures. Her mentions of unexpected economic resilience and possibly peaking labor market slack hint at minimal downside growth risks, which supports the idea of continued GBP strength as the markets anticipate a more gradual path towards future rate reductions.
Meanwhile, investors in Tokyo are looking ahead to the National CPI data for September, which is set to be released this Friday.
