FX.co ★ The Bank of England can raise rates

After the release of strong data on consumer inflation in the UK, as well as the increase in selling and purchasing prices of producers, the question of whether the Bank of England will raise interest rates at the September meeting has surfaced again.

Released on Tuesday, really strong data on consumer inflation unexpectedly showed a significant increase in August, both in monthly terms and in annual terms. This increases the likelihood of an increase in interest rates by the Bank of England at its September meeting. Today there will be more figures on the average level of wages in the UK, as well as on employment. It is expected that wages rose by 2.3% in July against the 2.1% increase in June. Also, growth in applications for unemployment benefits is expected. It can be assumed that if the data prove to be better than forecasts or, at least, not worse than expected, it will support the British currency on the wave of increasing expectations of higher interest rates next week.

In addition to data from the UK, the market will focus today on the publication of figures for industrial inflation in the US. It is estimated that the producer price index will increase sharply both in annual and monthly terms. The annual figures will have to jump to 2.5% from 1.9%, and the monthly increase in August by 0.3% after a 0.1% drop in July.

If these data prove to be worse than forecasts or show higher values, then, the US dollar may receive domestic support against the euro and, possibly, also against the yen.

In general, the currency market can be expected to continue the consolidation period before the meeting of the Bank of England and the Federal Reserve. At the first meeting, a decision may be made to raise interest rates or reduce the volume of asset purchases, while at the second meeting it will be decided to start reducing the balance of the Fed. The first event will support the British currency, and the second will show investors the path of the future monetary policy.

Forecast of the day:

The EURUSD pair may be under pressure on the wave of strong data on production inflation in the US and is able to drop to 1.1925, but its decline will probably be domestic, as the market will expect the release of figures on consumer inflation in the US and the results of the Fed meeting.

The EURGBP pair fell to the level of 0.9000, the overcoming of which can still cause the continuation of its decline to 0.8885. But it is likely that before the meeting of the Bank of England the pair will consolidate, and only the decision of the regulator to raise rates or reduce the volume of asset purchases will lead to its further decline.