Forex Today: Pound Sterling falls on soft UK inflation, focus shifts to Fed

Here is what you need to know on Wednesday, September 20:

Pound Sterling weakened against its major rivals early Wednesday as investors reacted to softer-than-forecast August inflation data from the UK. Later in the day, the Federal Reserve (Fed) will announce its interest rate decision and release the revised Summary of Economic Projections (SEP) - the so-called dot plot. In the early trading hours of the Asian session, market participants will pay close attention to second-quarter Gross Domestic Product data from New Zealand.

Annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), edged lower to 6.7% in August from 6.8% in July the UK's Office for National Statistics reported on Wednesday. This reading came in below the market expectation of 7.1%. Other details of the report revealed that the Core CPI inflation declined to 6.2% from 6.9% in the same period, while the Retail Price Index rose 9.1%, compared to analysts' estimate of 9.3%. With the immediate reaction to inflation figures, GBP/USD dropped to its weakest level since late May below 1.2350. Reflecting the broad selling pressure surrounding the Pound Sterling, EUR/GBP jumped to a six-week-high above 0.8650 and GBP/JPY lost more than 50 pips to drop below 183.00.

Breaking: UK CPI inflation eases to 6.7% in August vs. 7.1% expected.

The Fed is widely expected to leave its policy rate unchanged at the 5.25%-5.5% range. Revisions to the dot-plot and Fed Chair Jerome Powell's comments on the policy outlook, however, could trigger sharp fluctuations in the US Dollar (USD). The cautious market mood helped the USD stay resilient against its peers in the second half of the day, allowing the USD Index to stay in a consolidation phase slightly above 105.00.

Federal Reserve Preview: Powell to propel US Dollar higher with powerful projections, hawkish tone.

EUR/USD climbed above 1.0700 during the European trading hours on Tuesday but closed the day below that level. Early Wednesday, the pair was seen moving up and down in a tight channel.

USD/JPY registered small gains on Tuesday and continued to edge higher toward 148.00 in the Asian session on Wednesday. 

NZD/USD registered gains for the second consecutive day on Tuesday and rose to the 0.5950 area early Wednesday. New Zealand's economy is forecast to expand at an annual rate of 1.2% in the second quarter, down from 2.2% growth recorded in the first quarter.

USD/CAD dropped below 1.3400 for the first time in over a month on Tuesday after Statistics Canada reported that the annual CPI rose 4% in August, surpassing the market expectation of 3.8%. Falling crude oil prices, however, limited the Canadian Dollar's gains and the pair erased a large portion of its daily gains in the late American session. At the time of press, the pair was moving sideways near 1.3450.

Following Monday's bullish action, Gold price continued to stretch higher on Tuesday but struggled to gather bullish momentum. With the benchmark 10-year US Treasury bond yield holding comfortably above 4.3% ahead of the Fed event, XAU/USD stays in a consolidation phase slightly above $1,930.