Sterling traded in a choppy range, rising into the 06:00 GMT inflation release before failing just shy of 1.3500 and then reversing. GBP/USD was last just above 1.3450, down 23 pips on the day, after giving back 53 pips over roughly six hours and extending the retreat by a further 30 pips. UK CPI rose 3.1% year on year in August versus 2.9% in July, matching forecasts, while core inflation held at 2.6% and services prices stayed at 3.4%. The move in prices was concentrated in motor fuel, leaving the domestic inflation picture unchanged as the market turned to US rate risk.
US Federal Reserve Policy and Market Pricing
Attention shifts to the Federal Reserve at 18:00 GMT, with the US policy range at 3.50–3.75% expected to move to 3.75–4.00% versus the Bank of England’s 3.75% Bank Rate; on midpoints, the carry flips by an eighth of a point. Sterling is down roughly 230 pips from its August high, while US retail sales rose 1.2% in August against a 0.8% forecast and the control group increased 1.4%. Futures imply a US rate of 4.15% by December and 4.52% by summer 2027, versus the Fed’s last projection of 3.6% next year; UK pricing has Bank Rate at 4% by November and around 4.25% in early 2027.
Bank of England Decision and Technical Factors
The BoE decision is due 11:00 GMT Thursday, with a 6–3 hold expected; odds of a hike are near 30%, up from under 10% a week ago, as PPI rose 0.7% m/m versus 0.3% and 3.7% y/y versus 3.3%, while Friday sales are forecast at -0.2% after -0.5%, and -0.2% ex-fuel. Technical levels cited include resistance near 1.3500 and 1.3550, support just under 1.3450 around the 200-day EMA, then 1.3400 and 1.3350, with the daily Stoch RSI near 16 for three sessions.
