The British pound edged lower in the European market on Wednesday against a basket of global currencies, giving up its highest level in ten weeks against the U.S. dollar, due to correction and profit-taking activity, coinciding with the U.S. currency holding steady ahead of the Federal Reserves policy decisions.
The Bank of England meets tomorrow, Thursday, to discuss monetary policy tools appropriate for the developments in the U.K. economy, with full expectations that British interest rates will remain unchanged.
To reprice the probabilities of a British rate cut during the remainder of this year, investors are awaiting the release later today of key U.K. inflation data.
Price Overview
GBP exchange rate today: the pound fell against the dollar by 0.1% to (1.3639$), from todays opening price of (1.3652$), recording a high of (1.3660$).
On Tuesday, the pound rose by 0.35% against the dollar, marking a second consecutive daily gain, and reached its highest level in ten weeks at 1.3672$, supported by the decline in the dollar and U.S. yields.
U.S. Dollar
The dollar index rose on Wednesday by less than 0.1%, holding above a ten-week low at 96.56 points, reflecting a slight rebound in the U.S. currency against a basket of global peers.
In addition to buying activity from low levels, this rebound comes as investors pause from building new short positions while awaiting the results of the crucial Federal Reserve policy meeting.
The U.S. central bank is expected to cut interest rates by only 25 basis points, despite continued pressure from Donald Trump on U.S. monetary policymakers to implement deeper cuts to address risks in the housing market.
British Interest Rates
Following mixed labor market data from the U.K. on Tuesday, market pricing for a 25 basis point rate cut by the Bank of England at Thursdays meeting remains below 20%.
The Bank of England meets tomorrow to discuss monetary policy in light of recent U.K. economic developments, particularly growing concerns about financial stability.
The vote on cutting British interest rates during the August meeting revealed clear division among members over the path of monetary easing.
U.K. Inflation Data
To reprice the existing probabilities regarding British interest rates, investors are awaiting the release later today of U.K. inflation data for August, which is expected to strongly influence the Bank of Englands policy path.
At 07:00 GMT, the consumer price index is expected to rise by 3.9% year-on-year in August, compared with a 3.8% increase in July. The core CPI is expected to rise by 3.7% year-on-year, down from 3.8% in the previous month.
Outlook for the Pound
At Economies.com we expect: if U.K. inflation data comes in higher than market forecasts, the probability of a British interest rate cut before the end of this year will decline, which would push the pound to higher levels against the U.S. dollar, reaching fresh multi-month highs.