Pound muted as UK inflation remains at 19-month high in August

Pound (GBPUSD=X)

The value of the pound was little changed on Wednesday after new data revealed that UK inflation remained at a 19-month high in August.

Sterling was trading at $1.3641 at the time of writing, hovering around the flatline, but was up 0.2% versus the euro at €1.1522 as official figures showed CPI held at 3.8% last month in line with expectations.

The core rate of inflation, which strips out volatile energy and food costs, fell to 3.6% in August, also as forecast by economists.

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Nabil Taleb, an economist at PwC, said the data provided the Bank of England with “little reason to change course” when its Monetary Policy Committee (MPC) announces its next decision on interest rates tomorrow.

He said: “The August monetary policy report anticipated inflation peaking around 4% in September, and the MPC will want to see more convincing evidence that services and core inflation are on a downward path before easing further.

“The risk of cutting rates prematurely is that it could reignite price pressures just as expectations are stabilising.

“As a result, the bank is likely to remain cautious: weighing weak growth and a loosening labour market against the need to anchor inflation expectations, with any cuts signalled as gradual adjustments rather than a rapid shift toward stimulus.”

The US dollar index (DX-Y.NYB), which measures the greenback against a basket of six currencies, was muted, up 0.1% to 96.74.

Oil (BZ=F, CL=F)

Oil dipped on Wednesday as investors continued to assess the potential impact of Ukrainian drone attacks on Russian refineries.

Brent crude (BZ=F) futures fell 0.7% to $67.98 per barrel at the time of writing, while West Texas Intermediate futures (CL=F) declined by the same margin, to $64.08 a barrel.

Kyiv has stepped up attacks on Russian energy assets since August in a bid to impede Moscow's war effort in Ukraine and reduce the Kremlin's revenues as attempts to secure an end to the conflict through peace talks have stalled.

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Oil and gas revenues have accounted for between a third and half of Russia's total federal budget proceeds over the past decade, making the sector the single most important source of financing for the government.

Ukrainian drones have hit at least 10 refineries, cutting Russia's refining capacity by almost a fifth at one point, and damaged its leading Baltic Sea ports of Ust-Luga and Primorsk, Ukrainian military officials and Russian industry sources said.

The FTSE 100 (^FTSE) rose 0.2% on Wednesday morning, trading at 9,216 points. For more details, on market movements check our live coverage here.

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Gold (GC=F)

Gold prices slipped from the record high they touched in the previous session, ahead of the Federal Reserve's interest rate decision this evening.

The safe-haven commodity was trading just under $3,700 as investors locked in profits and a firmer dollar weighed on prices.

Analysts believe the recent rally has been driven by a potent mix of sustained central bank buying, intensifying safe-haven flows and a global shift away from the US dollar, which is also facing persistent weakness.

"On several occasions when gold approached $3,700 it came off again, which could well suggest option writers defending that level," Rhona O'Connell, a StoneX analyst, said.

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Gold's relative strength index (RSI) stood at 75, down from a more than 17-month high of 81 on Tuesday, indicating that the metal was overbought.

It comes as the US central bank is expected to deliver a quarter-percentage-point rate cut later in the day – the first rate cut since December.

Remarks from Fed Chair Jerome Powell will be closely watched for signals on the future path of interest rates. All eyes will also be on the quarterly dot plot showing where officials think rates will move next, as there is the potential for a big divergence between different officials.

Meanwhile, Deutsche Bank raised its gold price forecast for 2026 to an average of $4,000 per ounce on Wednesday, up from $3,700 previously.

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