The pound vs dollar rate jumped above the 1.39 resistance level on Tuesday – albeit briefly. Propelling the UK currency higher was a combination of dollar weakness and a strong set of UK labour-market figures – with the latter re-focusing investor attention on the Bank of England’s (BoE) timeframe for tightening monetary policy. Job vacancies moved above one million for the first time since records began as the UK economy’s recovery from the Covid-19 pandemic continued; while payrolls rose by more than economists had forecast.
UK inflation surged to its highest level since March 2012, increasing pressure on the BoE to rein in its economic stimulus. The Consumer Price Index jumped 3.2% last month – the most in nine years – after falling back to the central bank’s 2% target in July, the Office for National Statistics said on Wednesday morning.
The central bank expects inflation to hit 4% by the end of the year – double its target – before retreating in both 2022 and 2023. Investors are starting to place bets on policymakers hiking interest rates as early as next year to prevent the economy from overheating.
While the pound was given a boost by the inflation figures, it was recovering its losses having fallen sharply from 1.39 against the dollar on Tuesday.
US consumer prices post smaller-than-expected increase
The dollar was dragged lower on Tuesday by data showing that inflationary pressures associated with the economic reopening from lockdown restrictions may be starting to peak. US consumer prices increased at a modest pace last month; a sign that inflationary pressures are easing slightly after touching a 13-year high. The Consumer Price Index, released by the Bureau of Labor Statistics on Tuesday, increased 5.3% in August from 12 months ago, which represents the highest reading since 2008 and was in line with economists forecast.
US Federal Reserve officials have been closely monitoring inflation but largely believe this year’s spike will be temporary due to factors that will soon dissipate. They attribute their outlook to supply chain bottlenecks, shortages of critical products and heightened pandemic-related demand for goods.
The BoE’s Financial Policy Committee (FPC) meeting minutes are released on Thursday morning. The report, which is produced quarterly, provides in-depth insights into financial conditions and decisions that influence financial stability.
The next notable data from the US economy is published on Thursday: Retail Sales, Philadelphia Fed Manufacturing Survey, Retail Sales Control Group, and Initial Jobless Claims for the week ended 10 September.