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The focus now shifts to sterling

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Main points
The Consumer Prices Index including owner occupiers’ housing costs 12-month inflation rate was 2.7% in August 2017, up from 2.6% in July 2017.
Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August 2017.
Air fares also rose between July and August but the rise was smaller than between the same two months a year ago and so resulted in a partially offsetting, downward contribution.
The Consumer Prices Index (CPI) 12-month rate was 2.9% in August 2017, up from 2.6% in July 2017.

ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/aug2017

The primary catalyst for the GBP/USD’s rise was U.S. dollar weakness because the PMI services and composite indices eased in the month of August. That will change however in the week ahead when U.K. data dominates the calendar. Inflation, employment and consumer spending numbers are scheduled for release along with a Bank of England monetary policy announcement. Unlike other major central banks, the BoE has no immediate plans to change policy. When they last met, they voted 6-2 to leave interest rates unchanged, cut their forecasts for GDP and wage growth and expressed concerns about a “smooth transition to a new economic relationship with the EU.” Governor Carney said the bank’s forecast revisions factor in “uncertainty about the eventual shape of the U.K.’s relationship with the EU, which weights on the decisions of businesses and households and pulls down both demand and supply.” Since then we’ve seen continued weakness in consumer spending and inflation, which is why we don’t expect the BoE to veer away from their cautious tone. Yet we are looking for consumer prices, retail sales and labor market activity to improve in the month of August so GBP could rise in the front of the week and fall at the end of the BoE is more cautious than optimistic.

註釋

Inflation has shot past the BoE’s 2 percent target - surging to its highest level in more than five years according to data released this week at 2.9 percent.

But wages have lagged consumer price rises. Analysts say that complicates the BoE’s outlook for monetary policy, as the Bank grapples with an economy that is slowing in the face of uncertainty around leaving the European Union.

We’re seeing a little bit of a pullback in the pound and could see some weakness in the short to medium term.

But ultimately what it (wage data) does do is shift the focus to tomorrow’s BoE meeting and really, the big question is how concerned is the central bank about a 2.9 percent inflation rate.

Two members of the Bank’s Monetary Policy Committee are already voting for higher rates. Any more defections when the MPC meets on Thursday could push the pound higher.

But with the economy struggling, many traders doubt the Bank’s ability to raise rates at all.

The BoE is in an unenviable position heading into tomorrow’s MPC meeting, given that inflation is above target but the latest wage and investment data show that the economy is hardly going through a demand-driven boom that needs an immediate monetary response