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The British pound slightly fell against the US dollar after yesterday's attempt to break the weekly highs, which turned out to be unsuccessful. Pressure on the pound was formed by a weak report on inflation growth, which many traders expected.
It is a good report on achieving the target level of the consumer price index with a probability of exceeding it in the next few months that would allow speculative players to build up new long positions in the expectation that whatever the result of Brexit on October 31, the Bank of England will again begin to signal the likelihood of an increase in interest rates to contain inflationary pressures.
According to data, inflation in the UK sharply slowed in August. In the report, one of the reasons indicates a fall in prices for information technologies, including computer games.
Thus, the report of the National Bureau of Statistics indicated that the annual inflation rate in the UK was 1.7% in August, while in July, compared with the same period last year, consumer prices rose by 2.1%.
However, in the near future an increase in energy prices is expected, which may occur as a result of a rise in the cost of raw materials due to attacks on a key Saudi refinery.
As for the growth of the consumer price index CPI in the UK, it increased by 0.4 in August compared with July,. Economists had expected inflation to rise by 0.5% and 1.8%, respectively.
Core inflation, which does not take into account volatile categories, rose by 0.4% in August compared with July and by 1.5% compared to the same period in 2018. Although the chances that the Bank of England will raise interest rates are illusively small, especially when the Federal Reserve and the European Central Bank ease monetary policy, it should be recalled that at its last meeting, the English regulator signaled that it may raise interest rates three times in the next two years. This will be done in order to restrain inflation if the UK exit from the EU goes smoothly.
As for the technical picture of the GBPUSD pair, the pound's further growth depends on the weakness of the US dollar and on the results of today's Fed meeting. If the ceiling near 1.2530 is broken, then, most likely, the demand for the trading instrument will increase, which will lead to the renewal of new local highs around 1.2600 and 1.2640.
Eurozone inflation data went unnoticed for the EURUSD pair, which slightly adjusted after yesterday's growth.
According to the report, the Eurozone CPI CPI grew by only 0.1% in August this year compared with July and by 1.0% compared to August 2018, which is bad news for the European Central Bank, which last week already lowered the rate on deposits, saying that it would resume the asset repurchase program in November this year.
The data almost coincided with the forecasts of economists who expected monthly growth of 0.2% and 1.0%, respectively.
As for core inflation, it grew by 0.2% and 0.9% per annum. The eurozone consumer price index excluding tobacco products increased by only 0.1% in August compared with July.
In my morning review, I pointed out that today the Fed will lower its key interest rate by 25 basis points due to concerns about a slowdown in the global economy. The market has already taken into account this decline. Another thing is whether the Fed will announce the resumption of quantitative easing. If this happens, the pressure on the US dollar may increase significantly, which will lead to its fall against a number of world currencies.
As for the technical picture, it remained unchanged. A break of last week's high in the region of 1.1110 will cause larger purchases of the trading instrument, which will lead to an update of the levels of 1.1150 and 1.1230. Under the EURUSD decline scenario, the support will be at the level of 1.0990, and larger areas are already located at the lows of this month in the areas of 1.10950 and 1.0920.
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