rises after hotter inflation. unchanged as caution reins ahead of .
GBP/USD Rises After Hotter Inflation Lowers Rate Cut Expectations
- UK CPI rose to 3.8% YoY, up from 3.6%
- BoE rate cut expectations fade
- GBP/USD test 50 SMA support
GBP/USD is rising after came in hotter than expected, forcing traders to rethink Bank of England rate cut expectations.
rose at its fastest pace in 18 months, jumping to 3.8% YoY, up from 3.6% in June and ahead of the 3.7% forecast. Delving deeper into the figures, the surge in CPI was last driven by transport costs, particularly airfares and motor fuel, as well as a 4.9% rise in food prices.
This is the fourth straight month of accelerating food inflation, which is keeping headline CPI well ahead of the Bank of England’s 2% target, forcing traders to rein in rate cut expectations.
The BoE forecast inflation will rise to 4% in September, nearly double the 2% target.
The BoE will likely adopt a more cautious stance towards cutting rates, supporting GBP. The next rate cut from the BoE is expected in February.
Hotter than expected inflation often boosts GBP’s valuation as the Bank of England adopts a less dovish path compared to other major central banks such as the Fed and the ECB, which are both more dovish towards the year-end.
However, if UK CPI plateaus in September around 4% and growth weakens in Q3, GBP could quickly give up gains. This would be especially the case if Fed Chair Powell signals a less dovish stance at the speech on Friday.
GBP/USD Forecast – Technical Analysis
After breaking out of its falling wedge pattern, GBP/USD ran into resistance at 1.3590, a possible double top, and has eased lower, testing support at the 50 SMA around 1.35.
Sellers would need to break below 1.35 to open the door to 1.3435, the April high, and below here 1.3370 comes into focus.
Should the 50 SMA support hold at 1.35, buyers could look to rise to 1.36, with a move above here creating a higher high.
EUR/USD Unchanged as Caution Reins Ahead of Jackson Hole
- US rises with Fed rate cut expectations in focus
- German PPI falls for a 5th month
- EUR/USD struggles below 1.17
EUR/USD is edging lower amid strength ahead of the Jackson Hole symposium and after cooler-than-expected German .
The USD is rising against its major peers as investors await the Federal Reserve’s Jackson Hole Symposium starting tomorrow. The market is looking for further clues over the Fed’s stance towards further amid signs of heating up and a weakening labour market.
With the market pricing in an 85% chance of a 25 bps reduction in September and another before the end of the year, the risk is Powell not sounding as dovish as the market hopes, which could lift the USD higher.
On the data front, the German producer price index was cooler than expected, dropping 1.5% year on year in July after falling 1.3% in June. This marks the fifth straight monthly decline and the biggest drop since September 2024, mainly due to falling energy prices. Month on month fell -0.1%. The data comes ahead of data, which is expected to confirm the preliminary reading of 2%.
With inflation on target, the ECB left interest rates unchanged in the most recent meeting after eight straight rate cuts. Policy makers will be keen to see the impact of trade tariffs before moving again to reduce rates towards the end of the year.
EUR/USD Forecast – Technical Analysis
After running into resistance at 1.1830, EUR/USD has formed a series of lower highs, trading below its falling trendline. While the price recovered from its 1.14 August low and the 50 SMA it has struggled to rise above 1.17 and the trendline resistance. EUR/USD trades caught between the falling trendline and the 50 SMA, with the RSI neutral.
Buyers will look to rise above the 1.17 round number and falling trendline to extend gains towards 1.18 and 1.1830, the 2025 high.
Sellers will look to take out the 50 SMA to test 1.1575 support, the April high, and below here 1.14 comes back into view.