- The Pound Sterling turns erratic against the US Dollar after the release of the US CPI report for September.
- US inflation grew at a faster-than-expected pace on a monthly as well as an annual basis.
- In the UK, investors will pay close attention to the monthly GDP data for August on Friday.
The Pound Sterling (GBP) exhibits sheer volatility near 1.3050 against the US Dollar (USD) in Thursday’s North American session. The GBP/USD pair becomes unsteady after the release of the United States (US) Consumer Price Index (CPI) data, which showed that price pressures were hotter than expected in September.
The annual headline CPI inflation decelerated to 2.4%, the lowest figure since February 2021, from 2.5% in August but grew faster than estimates of 2.3%. Meanwhile, the core CPI – which excludes volatile food and energy prices – rose by 3.3%, faster than expectations and the former release of 3.2%. The month-on-month headline and core CPI rose steadily by 0.2% and 0.3%, respectively.
Market experts see the impact of the hot US inflation data to remain limited on the Federal Reserve’s (Fed) likely interest rate action in the last quarter of the year as policymakers are highly concerned over growing risks to economic growth, with confidence over inflation returning to the bank’s target of 2%. The Federal Open Market Committee (FOMC) minutes for the September meeting, released on Wednesday, showed that a substantial majority of Fed officials voted for a 50 bps rate, pushing interest rates lower to 4.75%-5.00%, to revive the labor market strength.
According to the CME FedWatch tool, traders have priced in a 25 basis points (bps) interest rate cut in each of the remaining two policy meetings this year.
Daily digest market movers: Pound Sterling struggles for direction
- The Pound Sterling exhibits a mixed performance against its major peers on Thursday. The British currency is expected to remain on edge, with investors focusing on the United Kingdom’s (UK) monthly Gross Domestic Product (GDP) and the factory data for August, which will be released on Friday.
- The UK economy is estimated to have expanded by 0.2% after remaining flat in July. The monthly Industrial, and Manufacturing production are expected to have grown by 0.2% after contracting in July. Signs of revival in activities in the manufacturing sector would improve the economic outlook, which will have a positive impact on the Pound Sterling.
- Meanwhile, the major trigger for the Pound Sterling will be market expectations for the Bank of England’s (BoE) outlook for the last quarter of the year. The BoE is expected to cut interest rates by 25 bps in one of the remaining two meetings in November or December. Traders have raised bets for rate cuts in November after last week’s speech from BoE Governor Andrew Bailey, in which he guided for an aggressive policy-easing cycle if price pressures ease further.
- BoE officials have remained worried about high inflation in the services sector due to robust wage growth. UK annual service inflation rose sharply to 5.6% in August from 5.2% in July.
Technical Analysis: Pound Sterling strives to sustain above 1.3050
The Pound Sterling struggles to gain ground near 1.3050 against the US Dollar. The GBP/USD pair has fallen on the backfoot after falling below the upward-sloping trendline from the 28 December 2023 high of 1.2827. The near-term outlook of the Cable remains bearish as it trades below the 20- and 50-day Exponential Moving Averages (EMAs), which trade around 1.3180 and 1.3110, respectively.
The 14-day Relative Strength Index (RSI) declines to near 40.00. More downside would appear if the momentum oscillator falls below the above-mentioned level.
Looking up, the round-level resistance of 1.3100 and the 20-day EMA near 1.3180 will be a major barricade for Pound Sterling bulls. On the downside, the Pound Sterling would find support near the psychological figure of 1.3000.
Economic Indicator
Consumer Price Index ex Food & Energy (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.
