The Pound sells its own inflation spike ahead of a Fed hike
The British Pound (GBP) trades just above 1.3450 on Wednesday, down 23 pips, after a morning that ran in two directions. It climbed into the August inflation release at 06:00 GMT, spiked on it, then spent six hours handing the move back and another 30 pips with it.
The British Pound (GBP) opened the trading day above 1.3450, after a volatile morning that saw the currency climb during the release of the August inflation data. The figure matched forecasts for monthly, annual and core rates, but the Pound sold 53 pips on the news. Consumer prices rose 3.1% year-over-year, in line with expectations, with core inflation holding steady at 2.6%.
However, higher fuel costs due to rising American interest rates have put pressure on the Pound. The Bank of England's rate is 3.75%, while the American Federal Reserve is expected to lift its rate to between 3.75% and 4.00%. A higher US rate makes Pound-denominated assets less attractive, as they pay less than their Dollar counterparts.
The Pound has lost about 230 pips from its August high due to this factor. Consumer confidence in the US supported the market this morning, with retail sales rising 1.2% in August, above forecasts. However, the future direction of both currencies and inflation will be the key factors influencing the GBP/USD pair.
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