Pound Set to Close Week in Red as Dollar Boosted by U.S. Inflation Print
The British pound is expected to close the week in the red against the US dollar following the release of August's inflation data. The data showed that U.S. core inflation rose 0.3% month-on-month, beating forecasts and lifting market-implied odds of a Federal Reserve rate hike next Wednesday to 90%. Headline inflation rose 0.4% month-on-month and 3.4% year-on-year, while core inflation eased to 2.4% year-on-year from 2.5%.
The pound's resilience above $1.3475 suggests that it may be set for a 'buy-the-fact' response to next week's Federal Reserve decision, with the 21-day moving average at $1.3559 being the first objective on a post-Fed recovery. Karl Schamotta, Chief Market Strategist at Corpay, believes that the balance of risks facing the Fed now favours raising rates.
The Bank of England is expected to make its decision on Thursday, with Deutsche Bank predicting a 6-3 vote to hold Bank Rate at 3.75%. Sanjay Raja, Chief UK Economist at Deutsche Bank, says that the case for staying on hold is weakening slowly, and that the MPC's patience may be running thin.