The United Kingdom’s Office for National Statistics is set to release the Consumer Price Index (CPI) data for September on Wednesday. This report is highly anticipated as it could confirm expectations of a 25 basis points interest-rate cut by the Bank of England (BoE) in November. The release of this data is expected to inject a fresh bout of volatility into the Pound Sterling.
Analysts expect the UK annual Consumer Price Index to slow down to 1.9% in September, falling below the BoE’s target of 2.0%. The core CPI inflation is also expected to ease to 3.4% year-over-year in September. Services inflation is predicted to decrease to 5.2% from 5.6% the previous month. These figures could seal the deal for a November interest-rate cut by the BoE.
The Bank of England projected the annual headline CPI at 2.1% and services CPI at 5.5% for September. However, rapidly falling energy prices are expected to heavily distort the headline number. Hotel and airfare prices are expected to remain key sources of volatility in the month. Overall, the UK inflation is expected to continue its downward trend.
Pound Sterling traders are closely monitoring the UK CPI data release as it could impact the likelihood of a BoE rate cut next month. Depending on whether the CPI readings meet or exceed expectations, the Pound Sterling could either strengthen or weaken. An upside surprise to the inflation data could douse expectations of a rate cut, leading to a stronger Pound Sterling. Conversely, a soft inflation report could confirm another rate reduction in November, weighing on the British currency.
Technical analysis shows that GBP/USD is in a downside consolidative mode ahead of the CPI data release. The pair needs to find acceptance above the 50-day Simple Moving Average to negate the bearish bias. Key resistance levels to watch are at 1.3115 and 1.3175. On the downside, immediate support is at the 100-day SMA at 1.2950.
Overall, the upcoming UK Consumer Price Index report is expected to have a significant impact on the Pound Sterling. Depending on whether the data meets, exceeds, or falls short of expectations, the currency could either strengthen or weaken. Traders will be closely monitoring the release to gauge the likelihood of a BoE rate cut in November and its impact on GBP/USD.
