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Currency Market Update - 20th September 2023

Currency Market Update UK Core Inflation YoY (Aug) was expected to drop by 0.1% to 6.8% but released cooler than expected at 6.2%. This eases some of the pressure for the BOE on Thursday ahead of its interest rate decision, with a 25 basis points hike on the agenda.

Inflation Rate also came in lower than forecast at 6.7%, which is a drop from 2 preceding months sitting at 6.9%. MoM the data also released 0.4% lower.

Since April, Core inflation has hovered above 6.8%, except in May when it hit 7.1%- the highest it’s been in over 12 months. Many Analysts Are predicting that inflation will fall to around 5% by the end of the year, so today’s data release suggests inflation is headed in the right direction.

Recent stats suggest that the CPI has risen by 0.3%, indicating a reversal in the slowdown of the cost of living and an end to the 6 months of period of falling inflation.

This is due to a sharp rise in petrol prices and a rebound in oil prices due to production cuts in Russia and Saudi Arabia. Earlier this week a barrel of oil approached €100, the price far exceeding the highest point of the year, which stood at €88 a barrel back in January.

All 3-inflation metrics suggest that inflation may have peaked and the BoE’s pledge back in January to cut inflation down to 5.3% by December may be achieved.

In the afternoon the Federal Reserve is meeting to decide on interest rates, an unchanged pause is expected.

The CME Fed Watch tool predicts a 40% likelihood that rates will rise again by the end of the year.
There is a possibility that further rate hikes may occur during the 2 remaining meetings of this year, and this would depend largely on the Economic Projections for next year and the state of the jobs market.

With inflation having dropped significantly over the last few months, the 2% target rate is still a long way off so a further rate hike may be needed but this decision is likely to rest on data on service prices and the housing market.



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