GBP Under Pressure, UK CPI Cools
The pound sterling (GBP) weakened on Wednesday following the release of UK inflation data for August. The data showed easing price pressures, adding to the burden on the GBP ahead of tomorrow's Bank of England (BoE) interest rate decision.
Services inflation—the BoE's most closely watched component—fell to 4.7% from 5.0% in July. Core CPI also slowed to 3.6% from 3.8%, in line with expectations. Meanwhile, headline inflation grew 3.8% (below the 3.9% estimate) and rose 0.3% monthly, faster than the 0.1% increase in July.
This weakening inflation rate has led the market to assess that price pressures are increasingly under control. Expectations for additional tightening are fading, and the likelihood of further easing in the next period is seen as increasing—a sentiment that typically puts pressure on the GBP against other major currencies.
The next trigger is the BoE's decision on Thursday, which almost certainly will hold interest rates at 4%. The market will focus on the tone of the statement and forward guidance to gauge the likelihood of the next policy direction: to maintain the current level for longer, or to open up room for a cut if inflation continues to cool.
Source: Newsmaker.id
