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GBP/USD sits at three-week highs ahead of US inflation

Sterling hopped to three week highs as USD eased ahead of the US CPI data, due later today.

The Pound has enjoyed some steady gains recently, boosted by the overall USD weakness as investors took profits from the previous USD rally, pushing the GBP/USD pair above 1.17 for the first time since late August.

UK data mixed

The official unemployment rate in the UK fell to 3.6% in July, below the forecast of 3.8%, according to data released on Tuesday by the Office for National Statistics (ONS). Still, the change in claimant counts revealed an unexpected rise in August.

In August, there were 6.3K more persons requesting unemployment benefits than had been anticipated (-9.2K), a decrease from the -10.5K originally booked.

The average weekly wage in the UK was +5.2% 3Mo/YoY in July compared to +4.7% last and +5.0% predicted, while the measure that takes bonuses into account was +5.5% 3Mo/YoY in July compared to +5.1% previous and +5.2% expected.

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The path of the British pound will be determined by UK economic statistics, Bank of England (BoE) decisions, and—very importantly—direction from the Tory government and its new leadership. In the upcoming weeks, Rabobank economists predict that the pound will continue to deteriorate.

“The promise of higher interest rates is not a guarantee of GBP strength when the economy is facing recession. If Truss can find a way to piece together a solution that strengthens relations with the EU, investors could take heart. This, however, will not be easy, “ they said.

US inflation data loom

The August U.S. consumer price index will be released on Tuesday, and it will be the final key indicator of the country’s inflationary pressures before the Fed policy-setting meeting next week.

Analysts predict that the headline number would be 8.1%, which would be lower than the previous month’s 8.5%, and take into account the roughly 10% drop in gasoline prices. Inflation is expected to decrease by 0.1% on a monthly basis after remaining unchanged in the previous month.

The core number, which excludes food and fuel and is anticipated to keep increasing, will be what the market will be focusing on in addition to the headline number.

“It will take some surprising numbers to make the Fed deviate from a third consecutive 75bp rate hike,” analysts at ING said, in a note. “After all, the economy is posting decent growth, creating jobs in significant numbers, and Fed Chair Jerome Powell is arguing that ‘we need to act now, forthrightly, strongly as we have been doing and we have to keep at it until the job is done’.”

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