Higher Inflation Rate Boosts Sterling, GBP/USD Fails To Hold 11-Month Highs

Sterling is likely to maintain a firm tone ahead of Thursday’s Bank of England interest rate decision, especially if there is a stronger than expected figure for average earnings. A more hawkish bank tone is likely to be needed to sustain a move above 1.3270.

Sterling maintained a robust tone during US trading on Monday, although there was no significant headway for GBP/USD as the dollar maintained a firmer tone.

The UK inflation data was stronger than expected with an increase in the year-on-year inflation rate to 2.9% from 2.6% compared with consensus forecasts of a 2.8% rate. Core inflation rose to 2.7% from 2.4% with the RPI rate at 3.9% and all figures were stronger than expected.

The data triggered strong upward pressure on Sterling with increased speculation that the Bank of England would need to move to raise interest rates.

GBP/USD initially moved above 1.3250 following the data while EUR/GBP declined to the 0.9020 area.

There was evidence of further Sterling short covering ahead of the US open as EUR/GBP dipped to 5-week lows just below the 0.9000 level.

GBP/USD maintained a firm tone, although it was hampered to some extent by a firm dollar. Overall, the pair made a break above 1.3270 and pushed to the highest level for close to 12 months.

The US job-openings data remained strong with the series at a fresh record high of 6.17mn for July. The data helped maintain a firm dollar tone which also limited the scope for fresh Sterling gains.

EUR/GBP also found buying support below 0.9000 which curbed the potential for GBP/USD gains.

After failing to hold above the 1.3270 level, GBP/USD retreated to below 1.3250 later in the European session.

GBP/USD 4-Hour Chart

gbpusd12-09-17

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.