Above-forecast UK inflation and higher public debt leave British Pound wavering

• GBP/USD fluctuated near 1.3475. Tuesday’s attempt to clear one-month highs at 1.3400 had failed.
• September’s above-forecast UK inflation reinforced the case for a BoE interest rate rise next month.
• Higher UK government borrowing may have cancelled out the support for the Pound.

GBP/USD touched a session low of 1.3364. It then recovered towards 1.3375. The British Pound (GBP) fluctuated against the US Dollar (USD) on Wednesday as UK Consumer Price Index (CPI) data exceeded forecasts and government debt rose further. The pair continues to consolidate its gains of recent days, having failed to hold above 1.3400 on Tuesday.

September’s UK Consumer Price Index (CPI) increased 0.4%, National Statistics reported. That exceeded the 0.3% market forecast but was slightly below August’s 0.5% rise. Year-on-year (Y-o-Y) CPI growth picked up from 3.1% in August to 3.5%, surpassing the 3.4% consensus.

Excluding volatile food and energy prices, core CPI rose 2.8% Y-o-Y. This was above the 2.7% consensus and followed a 2.6% Y-o-Y increase in August.

September brings further rise in UK government borrowing

UK Public Sector Net Borrowing reached GBP 24.52 billion in September, up from GBP 17.25 billion in August, according to National Statistics figures published alongside the inflation release. The increase may have revived longstanding concerns over the UK’s high public debt, placing some downward pressure on the Pound.

An unexpected fall in the ILO Unemployment Rate on Tuesday, to its lowest in more than a year, preceded Wednesday’s releases. Together with last week’s strong Gross Domestic Product (GDP) figures, the data have reinforced market expectations that the Bank of England might raise interest rates at its November 5 meeting.

Following five days of selling, the Dollar Index (DXY) is recovering some ground, with the US Dollar modestly firmer on Wednesday. Markets have already priced in a pause at next week’s Federal Reserve (Fed) monetary policy meeting. Meanwhile, concerns over high oil prices, against a backdrop of uncertainty surrounding the Middle East conflict, continue to direct safe-haven flows towards the Greenback.