The British pound has posted strong gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.3264, up 0.80% on the day. On the release front, British CPI picked up speed, climbing 2.9% in August. This beat the estimate of 2.9%. In the US, JOLTS Job Openings improved to 6.17 million, easily beating the forecast of 5.96 million. On Wednesday, the UK releases wage growth, while the US will publish PPI.
The pound posted a strong gain of 1.7% last week, and the rally has resumed on Tuesday. Earlier in the Tuesday, session, the pair jumped to 1.3288, its highest level since September 2017. The pound was buoyed by strong inflation data, as CPI improved to 2.9% in August, up from 2.6% a month earlier. CPI, the primary gauge of consumer inflation, jumped on higher clothing and fuel prices. With inflation remaining above the BoE’s target of 2.0%, policymakers will be under renewed pressure to raise interest rates. However, the economy has lost steam in 2017, and rate hike could hurt the economy. How will this play out at the BoE? Policymakers won’t have much time to mull over the latest inflation readings, as the BoE holds its monthly policy meeting on Thursday. Whether the bank opts to raise rates or stay on the sidelines, traders should be prepared for some movement from the pound.
Bexit negotiations are grinding slowly, with plenty of major gaps between Britain and the European Union. Britain must take legislative measures to untangle itself from the continent, and the May government took a first step in that direction on Monday, as parliament voted on the EU Withdrawal Bill. The bill, which will convert all existing EU legislation into UK law, passed its second stage, with the government winning the vote by 326-290. However, the bill is far from done, with many MPs, including Conservatives, tabling amendments. Prime Minister May, still smarting from a disastrous June election, the vote is a small victory on the long journey of navigating Britain out of Brexit. The US economy has been performing well in the second quarter. Preliminary GDP came in at a sizzling 3.0%, and the labor market remains close to capacity. Still, the Achilles heel of the economy remains stubbornly low inflation levels. Wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed’s plans to raise interest rates a third time this year, and the odds of a December hike have dipped to just 31%, as the markets are increasingly doubtful that the Fed will make a move before next year. Will the inflation picture improve? We could see better numbers this week for August inflation – PPI is expected to improve to 0.3% on Tuesday, and the same gain is forecast for CPI on Wednesday. Both estimates are higher than the July readings.
