On August 21st, UK inflation surged to 3.8% in July, hitting an 18-month high, with services inflation also exceeding central bank forecasts, further weakening market expectations for near-term rate cuts by the Bank of England. According to data released by the UK's Office for National Statistics on Wednesday, the Consumer Price Index (CPI) rose 3.8% year-on-year in July, up from 3.6% in June, marking the fastest pace since January 2024. Rising airfares, hotel costs, and motor fuel prices were the primary drivers behind the accelerating inflation. In breakdown components, food inflation accelerated from 4.5% last month to 4.9%, reaching its highest level since February 2024. The data suggests that businesses are passing on billions of pounds in additional costs from tax increases and minimum wage hikes to consumers. Services inflation, a key gauge of underlying price pressures, climbed to 5%, surpassing the Bank of England's forecast of 4.9%. This data is particularly concerning for policymakers as it reflects the persistence of domestic price pressures in the UK.
Additionally, the Federal Reserve's July meeting minutes released on Wednesday showed that only two officials voted against maintaining the benchmark rate unchanged at last month's meeting, failing to gain open support from other colleagues. The minutes stated: "Nearly all participants agreed that maintaining the federal funds rate target range at 4.25%-4.50% was appropriate at this meeting." Fed Vice Chair Bowman and Governor Waller advocated for an immediate 25 basis point cut to prevent further deterioration in the labor market. This marks the first time since 1993 that multiple Fed governors have publicly dissented on rate decisions, with tariff issues creating an increasingly deep rift within the central bank. The minutes revealed that officials engaged in heated debates over tariffs' impact on inflation and the degree of "restrictiveness" in current policy stance. Some policymakers noted that the current federal funds rate may already be approaching neutral levels—the threshold that neither stimulates nor restrains economic activity.
Today's key data releases include Eurozone August S&P Global Manufacturing PMI preliminary reading, UK August S&P Global Services PMI preliminary reading, US initial jobless claims for the week ending August 16th, US August Philadelphia Fed Manufacturing Index, Eurozone August Consumer Confidence preliminary reading, and US July existing home sales annualized total.
USD Index The USD index consolidated yesterday with minimal daily decline, currently trading around 98.30. Beyond September Fed rate cut expectations weighing on the currency, President Trump's call for Fed Governor Cook's resignation and concerns over Fed independence also pressured the index. However, Fed meeting minutes showing only two policymakers supporting rate cuts limited the downside correction. Today, watch for resistance near 98.80, with support around 97.80.
EUR/USD The Euro consolidated yesterday with modest daily gains, currently trading around 1.1650. Short covering and technical buying near the 1.1600 level provided some support, while USD weakness amid Fed independence concerns and rate cut expectations also supported the pair. Additionally, Eurozone CPI data meeting market expectations during the session provided further support. Today, watch for resistance near 1.1750, with support around 1.1550.
GBP/USD The Pound declined yesterday, hitting a 6-day low, currently trading around 1.3460. Cooling expectations for aggressive Fed rate cuts and minutes showing only two policymakers supporting cuts were the primary factors pressuring Sterling lower. Additionally, lingering BoE rate cut expectations continued to weigh on the currency. However, USD weakness and strong UK economic data during the session limited the downside. Today, watch for resistance near 1.3550, with support around 1.3350.