Sterling has come under pressure today following weaker-than-expected UK inflation figures.
The annual consumer price index (CPI) readings for August came in at 6.7% versus analyst estimations for 7.1%. Although this is a positive for struggling households, it has reduced the interest rate expectations from the Bank of England who will release their latest rate decision and meeting minutes tomorrow afternoon. Ahead of today’s figures, the market odds of another 0.25% hike were sitting around 80%, but, following the data, this has now moved to roughly 50%. So, although there’s still many that believe they will hike again tomorrow, it could be the last one in this rate hike cycle and therefore appears that a November hike is now off the cards.
As a result, the GBP/USD dropped around half a cent which moved it down to the lowest levels since the end of May. The GBP/EUR also fell around half a cent and now trades at a 1-mth low. Tomorrow’s BoE meeting will be watched even closer and a hike might provide some initial knee-jerk support for the Pound given the odds have fallen so dramatically. However, for any meaningful support it’s likely the markets would want to be convinced the BoE could still do more hikes. Given the recent flurry of weaker-than-expected UK data releases, this might be a challenge for them to do.
Tonight, sees the latest Federal Reserve interest rate decision and, although no hike is expected, traders will be looking for clues on the latest forecasts and expectations for if/when they might hike again. Expectations have been shifting higher over the previous few weeks as US data continues to be robust and inflation becoming more sticky again. Finally, Friday sees the latest release of UK retail sales figures which will give a good idea on how well the UK consumer is coping with the current economic conditions.