FUNDAMENTAL FORECAST BRITISH POUND: NEUTRAL
GBP/ US extends advance after the US Consumer Price Index trades to a new monthly high (1.3773) and current market conditions could push the exchange rate towards September's high (1.3913). Mixed data prints from the US economy undermine speculation about a shift in Federal Reserve policy.
The Bank of England (BoE), warning that "global cost pressures continue to affect UK consumer good prices" and that signs of sticky inflation could cause the central bank to shift gears. "Some modest tightening of monetary policy over the forecast period was likely necessary to be consistent in meeting the inflation target sustainably over the medium term."
The update to the UK CPI may strengthen the BoE's hawkish outlook. Although the headline reading for inflation will remain at 3.2% per year in September, a decrease in the core reading could drag on the British Pound. This gives Governor Andrew Bailey and Co. more scope to maintain the current course of monetary policy.
A batch of mixed data prints could generate a limited reaction to GBP/USD, as the BoE's central expectation remains that current high global cost pressures will prove temporary." However, a significant slowdown in UK CPI may stop the recent recovery. The Monetary Policy Committee, (MPC), pledges to "focus more on the medium-term prospects and inflation, than factors that are likely be transient."
However, signs of a sticky UK price rise may keep GBP/USD afloat if the MPC adopts forward guidance that is hawkish. Evidence of slower inflation could be a headwind for the British Pound, as it dampens speculation about a shift in BoE policy.