BOE to Hold Following Unchanged CPI

The British Pound is trading higher today on the back of the latest UK economic data released this morning. Annualised CPI for August was seen holding steady at 2.2%, in line with expectations. The data strengthens the view that the BOE will hold rates steady tomorrow at 5%. On the back of a slew of better-than-forecast data recently, it would have likely taken a decent downside surprise in today’s inflation data to push the bank towards further easing. Indeed, looking at the breakdown of the data, services inflation (a closely watched component by the bank) continued to rise last month. Against this backdrop, the BOE is expected to hold steady while it awaits further data.

Fed Impact on GBPUSD

Given that the Fed is widely expected to cut rates today, with some expectation of a deeper .5% cut, GBP stands to gain ground this week against USD. If the Fed does opt for a larger cut and the BOE holds steady tomorrow, this should see GBPUSD breaking out to fresh highs. A smaller cut from the Fed might muddy the near-term outlook however. Given the built up dovish expectation in the market, it's likely we see a short-covering rally in USD on a smaller cut. However, the updated dot plot forecasts and forward guidance from the Fed should be dovish enough to temper USD gains, ultimately creating room for GBPUSD to push higher beyond this week.

Technical Views

GBPUSD

For now, GBPUSD is sitting mid-channel, holding above the 1.3136 level. While this support holds, focus is on a fresh push higher above local resistance at the 1.3295 level, targeting 1.3431 as the next bull objective. To the downside, 1.30 and the bull channel lows remain key support.