Key points:
- UK inflation rises less than forecast.
- Sterling stages U-turn below $1.29.
- US inflation to shake forex markets.
British currency advanced 1% on Tuesday as forex traders dumped their dollars after PPI showed US inflation on business level was cooling.
- The
GBPUSD pair got jolted early Wednesday, after the latest report on UK inflation showed prices increased above the Bank of England’s 2% target but still undershot expectations. The annual advance in consumer prices, reported by the Office for National Statistics, showed a clip of 2.2% for July, sliding below the 2.3% eyeballed by analysts. The uptick follows a goldilocks 2% rate for May and June. - Markets moved to sell their pound holdings as an initial reaction to the news. The pound-dollar exchange rate reversed course after a four-day rally, which had shot the British currency up by about 2% to levels of just under $1.29. Early on Wednesday, the currency moderated to $1.2830 largely due to the inflation number not meeting the relatively high bar.
- Before the news, the sterling was buoyed by a falling dollar. A 1% rally on Tuesday was fueled by more signs of receding inflation in the US. The producer-price index, or PPI, showed a slight gain of 0.1% in July, but sliding below projections. Today, the string of inflation data continues with the heavyweight consumer price index, or CPI, arriving from the US. Expect heightened volatility — expectations are targeting a 2.9% rise for July.
