Key Points:
BOE Policy Hinges on Inflation Report
Markets are closely monitoring the UK’s September inflation data with expectations that core CPI will ease to 3.4% from 3.6%.
Headline inflation is also forecast to dip below 2% for the first time since April 2021.
If these numbers align with forecasts, it could signal a softening inflation trend, possibly reducing the need for further tightening by the BOE.
However, traders will pay special attention to services inflation and core CPI figures.
A surprise to the upside could bolster expectations of a BOE rate hike, providing support for the pound against the dollar.
On the other hand, if inflation falls faster than expected, the pound may come under renewed pressure.
Picture: GBP/USD consolidates at 1.30727 as seen on the VT Markets app.
The GBP/USD is consolidating near 1.30727, with momentum indicators showing neutrality ahead of critical UK inflation data.
A break above 1.31029 could signal bullish momentum, while a decline below 1.30500 may lead to further weakness.
Traders should monitor inflation updates and the Bank of England’s policy signals, as well as continued strength in the US dollar, which could act as resistance.
With limited European data releases today beyond the UK CPI, GBP/USD will likely experience volatility as traders digest the inflation report.
Market participants will also monitor any shifts in U.S. retail sales and industrial production data, scheduled for later in the week, which could influence the dollar and, by extension, GBP/USD.
See also: Week Ahead: Fed Mulls Policy as Inflation Softens
Looking ahead, if inflation prints higher than expected, the pound may gain ground as markets solidify expectations for a BOE rate hike in November.
However, a weaker inflation report could lead to further selling pressure, with GBP/USD testing new lows.
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