The British pound continued to rise despite the decision of the Bank of England not to change monetary policy. This is due to the expected increase in interest rates in the U.K. before the end of this year which is still high since there is more inflationary pressure, as indicated by the data on consumer inflation published just a few days ago.
It is hard to say whether the British regulator will decide whether to raise rates or cut off the volume of asset purchases within the incentive program. However, if inflationary pressures persist, this will have consequences for the British economy as the risk of uncontrolled inflation increases.
The U.S. consumer price index (CPI) demonstrated growth which caused only a local increase volatility in the foreign exchange market. In annual terms, the basic consumer price index remained at the same level of growth by 1.7% although, it was expected to drop to 1.6%. Indicators of consumer price indices increased. Over the month, the consumer price index rose 0.4% from 0.1%.while its annual value rose to 1.9% from 1.7%.
The market reacted rather toned-down upon the release of figures, which is mainly because the target level in the indicators remains below 2.0%. This is important since the main indicator of the Fed, the basic index of prices for personal consumption in August, showed a decline and still below the 2.0% mark. This is the reason why investors do not buy the dollar since there is a firm opinion in the markets that the Fed will halt its rate hike. This will not do anything and there is no reason to hope for a change in the trend of the US dollar in the near future.
The only thing that will be able to provide strategic support to the dollar is when the Fed begins its balance reduction. However, a lot will still depend on what will be reduced in terms of volume and at what time frame. For now, the attention of the markets is shifting to the results of the two-day Fed meeting to be held next week.
Forecast for the day:
Today, the EUR/USD pair will most likely continue trading in a lateral narrow range of 1.1840-1.12074 amid expectations of the Fed meeting results to be held next week and most especially, the pending the election of the German Chancellor.
The EUR/GBP pair has a high chance to continue its decline against the background of the weakness of the euro and the likely rate increase by the Bank of England before the end of this year. Meanwhile, a breakout at the level of 0.8865 could lead to its decline towards 0.8745.