Investors were taken by surprise as UK inflation figures revealed a sharper decline than anticipated, causing the GBP/USD exchange rate to drop to its lowest point in almost four months. Inflation unexpectedly fell to 6.7% instead of the estimated 7.1%, exerting significant pressure on the British pound.
The GBP/USD currency pair previously closed at a rate of 1.239. The current bid and ask prices are set at 1.2356 and 1.2357, respectively. This indicates a slight decrease in the value of the British pound against the US dollar from the previous close.
Early wednesday, the GBP/USD pair experienced fluctuations and this day’s range reflects the volatility of the currency pair within that particular trading session.
UK Inflation Eases in August 2023, Despite Rising Fuel Prices
CPI Annual Rate Slows Down
The Consumer Price Index (CPI) increased by 6.7% in the 12 months leading up to August 2023, slightly down from the 6.8% recorded in July. On a monthly basis, the CPI rose by 0.3% in August 2023, which is less than the 0.5% increase seen in August of the previous year.
Contributions to The Change in CPI
The most significant downward pressures on the monthly change in both CPIH and CPI annual rates came from food and accommodation services. Conversely, rising prices for motor fuel led to the largest upward contribution to the change in annual rates.
Core CPIH and Core CPI
Core CPIH, which excludes energy, food, alcohol, and tobacco, rose by 5.9% in the 12 months to August 2023, decreasing from 6.4% in July. Similarly, Core CPI experienced a rise of 6.2% during the same period, down from 6.9% in July.
Sector-Specific Inflation Rates
The annual inflation rate for restaurants and hotels was recorded at 8.3% in August 2023, showing a decrease from 9.6% in July. Prices of food and non-alcoholic beverages rose by 0.3% between July and August 2023, easing the annual rate to 13.6% in August 2023.
The cost of furniture and household goods saw a slight increase of 0.2% between July and August 2023, resulting in an annual rate of 5.1% in August 2023. Motor fuel prices also experienced a rise, contributing to an upward effect on the annual rates.
The annual inflation rate for housing, water, electricity, gas, and other fuels was 5.7% in August 2023, which is a slight increase from 5.4% in July.
Overall, the core CPIH annual inflation rate stood at 5.9% in August 2023, down from 6.4% in July1. Despite certain sectors such as motor fuels experiencing price increases, the overall UK inflation has shown signs of easing in August 2023.
Source: Office for National Statistics
Anticipation Builds for Fed’s Interest Rate Decision
Traders are shifting their focus to the Federal Open Market Committee (FOMC) statement scheduled for later today, September 20, 2023. This announcement is expected to shed light on the Federal Reserve’s current stance on interest rates.
Maintaining Current Rates
Despite the buzz and speculation surrounding potential rate changes, many experts predict that the Federal Reserve will maintain its current benchmark overnight interest rate. The last rate hike occurred in July 2023, raising the interest rates by 25 basis points to a range of 5.25%-5.50%.
Fed’s Fight Against Inflation
The Federal Reserve has been grappling with inflation, and any hint of an end to rate increases will be closely monitored by investors. However, it’s likely the Fed won’t be able to confidently predict its moves during the final meetings of 2023.
Announcement Details
The outcome of the FOMC meeting is expected to be declared at 11:30 pm IST. A new policy statement and interest rate decision will be released at 2 p.m. EDT. After this, Federal Reserve Chair Jerome Powell is scheduled to give his remarks.
The upcoming FOMC statement has the potential to cause significant ripples in the global financial markets. With traders around the world tuning in, the Federal Reserve’s decision on interest rates will be one of the most influential economic events of the day.
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