Pound Falls as Inflation Numbers Fail to Support Sterling Ahead of Fed Hike

The British Pound (GBP) traded just above 1.3450 on Wednesday, down 23 pips from its previous value after a morning that saw it climb and then retreat.

The release of August's inflation numbers, which matched forecasts of 3.1% annual growth and 2.6% core rate growth, failed to support the Pound as expected. The currency instead sold off 53 pips following the announcement.

The key issue is that Britain imports a significant portion of its fuel, which is priced in US dollars. As the Federal Reserve prepares to raise interest rates this afternoon, the value of those dollars increases, making it more expensive for the UK to import fuel and thereby increasing inflation.

Fed futures currently predict a 4.15% Fed rate by December and 4.52% by summer 2027, while Bank of England futures put Bank Rate at 4% by November and around 4.25% in early 2027. The Pound's rate advantage is set to end with the afternoon's interest rate decision.