USD to GBP Rate Stabilizes Above 1.30 Support After UK Inflation

The USD to GBP rate has shown stability in September, trading in a 2-cent range above 1.30, which is acting as support, together with the 200 weekly SMA. Earlier today we had the UK CPI consumer inflation numbers, but the range holds, as we await the main event for the day which is the FOMC meeting late in the US session.

The GBP/USD pair was experienced some volatile price action last month, as it rallied by 6 cents, breaking above the key 1.32 level. However, sellers soon stepped in, pulling the exchange rate down by 2 cents, though they failed to push it below the crucial 1.30 psychological support level. This coincided with the UK economy stagnating, showing 0.0% GDP growth in both June and July, falling short of market expectations.

Despite this, buyers returned, driving the pair back above 1.32 this week. Much of this recent strength came from the USD side, which has been bearish. Today’s focus was on the UK CPI inflation report for August, with expectations of a 3-point rise in the headline figure, while core CPI was predicted to remain flat at 2.2%. The report adds another layer of anticipation ahead of the Bank of England’s next policy decision, as inflation data plays a crucial role in shaping the direction for interest rates.

UK CPI Inflation Report for August

• Headline CPI (Consumer Price Index):
  • +2.2% year-on-year (y/y), which is in line with expectations of +2.2%.
  • This is unchanged from the prior reading of +2.2%.
• Core CPI (excluding food and energy):
  • +3.6% y/y, slightly higher than the forecasted +3.5%.
  • This is an increase from the prior core CPI figure of +3.3%.

The report shows that while the headline inflation remained steady, core inflation, which excludes more volatile components, ticked up, signaling persistent inflationary pressures in certain sectors of the economy. Traders have been anticipating that the Bank of England (BOE) will keep the bank rate unchanged in tomorrow’s decision, with the probability of no change around 65%.

Today’s inflation data further solidifies the likelihood that rates will remain steady in September, particularly as services inflation increased from 5.2% in July to 5.6% in August. The BOE has emphasized that services inflation is persistent and a key indicator to monitor closely. Given this report, it seems likely that the BOE will maintain its cautious stance, awaiting further signs of easing inflationary pressures before considering any adjustments to monetary policy. They are expected to seek more substantial evidence of declining inflation before moving towards a more relaxed approach.

GBP/USD Live Chart