Inflation Surprises, But {{0|Pound Sterling}} to Remain Under Pressure Against Euro and Dollar
PoundSterlingLIVE – The will remain under pressure against the Euro, Dollar and other major currencies with news UK inflation has come in at higher levels than markets were expecting likely to only offer limited upside, if any.
Headline UK inflation rose 6.7% year-on-year in September said the ONS, unchanged from August but above the fall to 6.6% the market was looking for. The month-on-month figure ticked up to 0.5% from 0.3%, which was expected.
inflation was up 6.1% y/y in September, down from 6.2% but above analyst expectations for a drop to 6.0%.
The textbook would suggest this should offer the Pound support as it technically raises the odds of a further rate hike at the Bank of England, but the currency was relatively flat on the numbers.
Indeed, those who read Pound Sterling Live on Tuesday will have been prepared for such an outcome courtesy of our coverage of research by RBC Capital Markets that shows Pound Sterling traditionally tends to react when inflation figures surprise to the downside.
Furthermore, today’s data from the ONS shows services CPI inflation slowed from 7.4% to 6.8%, which will be welcomed by the Bank of England, which has shown great interest in this particular aspect of the inflation basket when formulating policy.
The Bank sees services inflation as being particularly prone to elevated inflation expectations, which it feels it can address by raising interest rates. Cooling inflation here will suggest to the Bank the steps it has taken are working.
The data is, therefore, unlikely to sway the Bank into another rate hike in November, particularly following Tuesday’s wage numbers that showed a cooling in wage pressures is underway, which can contribute to lower inflation rates in the future.
The Pound fell against the majority of its peers following the wage figures, which also led us to reflect that the market might have already moved ahead of the inflation release. In short, the market is hunting out any data releases which support a narrative that the Bank of England is done hiking.
A softer Pound is the expression of this.
The Pound to Euro exchange rate showed a slight upside reaction to the release but is ultimately flat on the day at 1.1520, the Pound to Dollar exchange rate is slightly higher at 1.22.
The Pound has been struggling to find any kind of upside impetus against the Euro and Dollar of late, and the data out this week suggests this situation is not about to change soon.
An original version of this article can be viewed at Pound Sterling Live
