- Sterling has dropped this morning after the release of the July inflation report, which came in below estimates. GBPUSD was consolidating around 1.2860 overnight but fell to 1.2820 as the data was released at 7am UK time. July CPI came in at 2.2%, higher than last month’s print of 2.0%, but below estimates of a reading of 2.3%, and the BoE’s own target of 2.4%. In a moved which is likely to be welcomed by the MPC, Services Inflation, which had been troublesomely sticky, slowed to 5.2% versus estimates of 5.5%. The central bank has been closely monitoring services inflation for signs of domestic price pressures and was forecasting a release of 5.6%. The below consensus print was the lowest reading in two years and adds to a mixed set of UK data that markets are watching for signs of when the BoE will lower interest rates again. Governor Andrew Bailey has been cautious about reducing interest rates, “too much or too quickly” and markets currently price at least one more reduction this year. A cut at the September meeting would mean reductions at consecutive meetings, and the odds now are around 30%, however a November cut currently appears more likely.
- Inflation remains a hot topic and yesterday’s US PPI report surprised to the downside, with July’s print coming in at 0.1% versus estimates of 0.2%. Declines were recorded across all areas suggesting that producers are having to charge less for goods and services. Traders will be glued to their screens at 1.30pm today as we await the key data release of the week – July’s US CPI report. The monthly headline rate is forecast at 0.2%, with the year-on-year expected at 3.0%. There are clearly risks to the upside on this report and volatility could be on the cards if there are any surprises this afternoon.
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