Sterling aims at more upside on still hot core inflation

The Pound Sterling climbs above 1.2750 after mixed United Kingdom inflation data for July. Monthly headline inflation contracted by 0.4%, slower than expectations of 0.5%. In June, headline CPI expanded by 0.1%.

The UK Pound starts moving as core inflation supports further policy tightening. UK’s core inflation remains stronger due to robust wage growth. More interest rate hikes by the Bank of England seem required so that inflation returns to the 2% level.

The Pound Sterling is strengthening, inspired by persistently high core inflation data. The GBP/USD pair delivers a consolidation breakout as the Core Consumer Price Index (CPI) remains stable at 6.9%, higher than the forecast of 6.8%. Robust wage growth keeps consumer spending momentum intact and core price pressure near its immediate peak of 7.1%.

The United Kingdom’s stubborn core CPI is enough to force the Bank of England (BoE) to consider a continuation of the aggressive rate-tightening spell. The UK’s central bank has already raised interest rates to 5.25%, and now further policy tightening appears more likely. Meanwhile, headline inflation contracted in July as firms passed on the benefits of cheap oil prices to end consumers.

Annual headline inflation softened to 6.8%, as expected by investors, versus. June’s reading of 7.8%. It seems that firms started passing the benefit of cheap oil on to end consumers.

Core inflation that excludes volatile oil and food prices turned out persistent despite aggressive monetary policy by the Bank of England. The economic data remained sticky at 6.9% while investors forecasted a marginal decline to 6.8%.

UK core inflation is marginally lower than its immediate peak of 7.1% and is sufficient to force BoE policymakers to raise interest rates further.

On Tuesday, the Pound Sterling was decently bought by market participants as robust wage growth offsets disappointing labor market data.