Drawdown in sterling for both GBP/USD and GBP/EUR as UK CPI reaches 10.1% YoY

[MongiIG]

A rise in food prices has been mostly responsible for the climb in consumer price inflation. Food and non-alcoholic price rises are at 14.6%, levels not seen in 40 years. Both GBP/USD and GBP/EUR have seen a drawdown in sterling.

 Jeremy Naylor | Writer, London | Publication date: Wednesday 19 October 2022

Inflation at four decade highs

Inflation has risen to its fastest rate in 40 years, with a rise from 9.9 to 10.1% of the consumer price headline rate.

Let's take a look at the figures as we continue to monitor the fallout from the data that we've seen. It's not just consumer prices but also producer prices and retail prices that have risen.

But, it's the headline 10.1% reading in September that takes us back to where we were in July after that slightly lower print in August, but we have been expecting a 10% number. So this is stronger than had been expected, adding to extra expectation that we could well see the Bank of England (BoE) give us a bumper interest rate rise on the 3rd of November.

Food and the non-alcoholic drink have risen by 14.6% in the 12 months through to September, up from 13.1% in the month of August. And it means that prices as I said are rising at this 40-year rate now. The inflation numbers are being driven by food prices mainly.

GBP/USD

If we look at what's been happening on the foreign exchange markets, in fact there's been a second day of declines for sterling.

This is the the daily candle chart showing us a pullback on from yesterday's drawdown. We saw just a slight reversal of what we saw was overall a positive day on the markets for sterling on Monday.

We've seen Jeremy Hunt now come through as the new Chancellor Exchequer, giving some extra hope for sterling off the lows that we saw when we saw that low print back at the lowest point we ever seen since decimalisation back in the early 70's. That was on the 26th of September. Since then, sterling has strengthened.

GBP/EUR

It also strengthened as well against the euro. But in today's session, its down for a fourth day in a row.

But we see it well off the lows that we've seen over the last couple of weeks or so for sterling. But the news out of this today is that we should expect to see further interest rate rises when the Bank of England meets at the beginning of November.

[MongiIG]

GBP/USD Dips as UK Inflation Rises Beyond 10%

Oct 19, 2022 | DailyFX
Zain Vawda, Analyst

UK CPI Key Points:

• UK CPI Rose 10.1% Annually, up from 9.9% in August.
• The Largest Contribution to the Increase was from Food Prices (14.8% vs 13.4% in August), Namely Oils, Fats and Dairy Products.
• The Annual Core Rate Rose to a Record-High of 6.5% Vs 6.4% Expected.

UK inflation accelerated in September beating estimates and matching the 40-year high set in July. The core rate of inflation came in at a record high of 6.5% while consumer prices rose 0.5% on a month-to-month basis. This renewed increase in inflation following last months respite highlights the challenges facing the UK economy and the Bank of England heading into the winter months.

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