British pound rises as core CPI jumps

The British pound has gained ground on Wednesday. In the European session, GBP/USD is trading at 1.3224, up 0.48% on the day.

UK core inflation surprises to the upside

First, the good news. UK headline inflation remained unchanged at 2.2% y/y in August, and matched the market estimate. The Bank of England had estimated that inflation would rise by 2.4%. Gasoline prices fell but this was offset by an increase in air fares. Monthly, headline inflation rose to 0.3%, up from -0.2% in July and in line with the market estimate.

The core inflation rate, which is a better gauge of inflation trends, showed a significant increase. Yearly, core inflation rose to 3.6%, up from 3.3% and above the market estimate of 3.5%. Monthly, the core rate climbed 0.4%, up from an upwardly revised 0.1% in July and matching the market estimate. Services inflation, which the Bank of England closely watches, rose from 5.2% to 5.6%.

The mixed inflation data isn’t expected to change minds at the BoE, which meets on Thursday. The central bank kicked off the new rate-cutting cycle on August 1 but is expected to maintain rates on Thursday. Inflation is moving in the right direction but services inflation remains a serious concern, given that the BoE’s inflation target is 2%.

All eyes on Mr. Powell

There’s little doubt that the Federal Reserve will finally join the rate-cutting club at today’s meeting, but will the cut be 25 or 50 basis points? Market pricing has been all over the map, which has only added to the anticipation and the suspense. A week ago, the odds of a 50-bps cut were just 14%; that has flipped to 65% currently, according the CME’s FedWatch. Investors will also be keenly interested in the ‘dot plot’ a projection of the FOMC’s outlook for interest rates.

GBP/USD Technical

• GBP/USD has pushed above resistance at 1.3178 and 1.3260
• 1.3127 and 1.3094 are providing support

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