GBP/USD: No reaction to soft inflation, weaker growth more likely to trigger a correction – MUFG
20.10.2021, 08:15

GBP/USD: No reaction to soft inflation, weaker growth more likely to trigger a correction – MUFG

The September inflation data has just been released in the UK and so far there has been limited reaction to the weaker than expected print. Economists at MUFG Bank believe that a soft growth data is more likely to drag the pound down.

UK annual inflation comes in modestly weaker but still elevated 

“The data, while a relief perhaps given the fears of late over surging inflation, might not dramatically change the thinking at the BoE. The overall annual inflation rate slowed from 3.0% to 2.9% in September. But the Q3 annual inflation reading has come in at 2.76%, close to but slightly above the BoE projection in August of 2.7%.”

“Even before this inflation release this morning we were arguing that the forward OIS market was indicating an excessive degree of monetary tightening priced into the markets. This leaves us with the view that the pound is vulnerable to some degree of correction to the downside, although perhaps not just yet.”

“A trigger for a GBP correction lower is more likely to materialise from evidence of weaker growth in the hard data.”

 

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