U.S. CPI highlights inflationary pressures, pound-dollar bulls suffer a heavy blow

On Wednesday (October 13), the pound rose against the dollar and fell. The newly released US September CPI performed better than expected, which dealt a heavy blow to the pound bulls.


The US Bureau of Labor Statistics announced on Wednesday that the US consumer price index (CPI) in September rose to 5.4% year-on-year from 5.3% in August. Analysts expect it to remain at 5.3%. On a monthly basis, the CPI rose slightly from 0.3% to 0.4%.

Further details of the data show that the core CPI (excluding volatile food and energy prices) remains unchanged at 4% as expected.

The financial website Forexlive commented on the US September CPI data, saying that the US dollar surged higher after the CPI data was released, most likely because the strong wage data received a response. Wage growth is the real crux of inflation, which is also evident in the non-agricultural employment report. It should be noted that the weakening of the food service industry caused by the delta strain and the decline in workers' wages may distort this situation. It is expected that this problem will be resolved soon with the sharp decline in new cases of new coronary pneumonia in the United States.

Another agency commented that the US September CPI rose more than expected, highlighting the continued existence of inflationary pressures in the economy. Unprecedented shipping challenges, material shortages, high commodity prices, and rising wages are all driving up the costs for manufacturers.

One stone stirred up waves, and the data quickly boosted the strength of the dollar and greatly dragged down the pound.

Earlier, the August GDP data released by the United Kingdom once pushed the pound to 0.4%.

After the British economy contracted for the first time in six months in July, it resumed growth in August. As a result, financial markets continued to bet that the Bank of England would start raising interest rates before the end of the year.

Britain’s August gross domestic product (GDP) grew by 0.4%, slightly lower than analysts’ market expectations of 0.5%. The July data was revised down to a decrease of 0.1%, when employee absenteeism caused by the Delta variant of the new crown virus reached a high point.

The Bank of England looks set to be the first major central bank to raise interest rates since the outbreak. Financial markets are betting that the benchmark interest rate will rise to 0.25% by December, which is currently at the lowest level in history of 0.1%.

From a fundamental point of view, the downward pressure on the pound will continue to exist before the Federal Reserve officially announced the reduction of debt purchases in early November.

Technically, the pound has been trading sideways recently, and the rebound since the end of September has been clearly lacking in momentum, and it is still below the 50% retracement level of the 1.3913-1.3412 range, which is also quite detrimental to the bulls.

ABN AMRO predicts that if the Bank of England rejects the call for early tightening of monetary policy, the pound may briefly fall to 1.32 against the dollar in the next two months.

At present, the long and short sides are still in the game, and the minutes of the Fed meeting later will provide new guidance, but it is expected to be negative for the pound.

Below the pound, what needs attention is yesterday's low of 1.3569. If you break this support, look at 1.3531, which is a 23.6% retracement level. A break below this level may open the door to the September 29 low of 1.3412.

Above, pay attention to the daily high of 1.3644, and further pay attention to the October 11 high of 1.3674 and the 50-day moving average at 1.3725.

(The British pound against the U.S. dollar daily chart)

At GMT+8 21:09, the British pound was quoted at 1.3604 against the U.S. dollar.