US Inflation Accelerates Ahead of Fed and Bank of England Decisions
Summary
US consumer prices accelerated in August, increasing expectations of a Federal Reserve rate rise this week
The UK economy grew more strongly than expected in July, with labour market and inflation data due before Thursday’s Bank of England decision
All 65 economists surveyed by Reuters expect the Bank of England to leave rates unchanged
The ECB raised rates last week as higher energy costs continued to complicate the inflation outlook across major economies
US inflation has put the Federal Reserve firmly at the centre of this week’s currency markets. Consumer prices rose 0.4% in August, while annual inflation remained at 3.4%. Core prices also increased more strongly than economists had expected. By Monday, markets were pricing an 86% probability of a quarter-point rate increase when the Federal Reserve concludes its two-day meeting on Wednesday.
The decision comes against an increasingly difficult energy backdrop. Oil prices rose more than 2% on Monday following new Houthi strikes on Saudi Arabia and attacks on vessels in the Gulf, while a key Saudi pipeline used to bypass the Strait of Hormuz remained shut. Oil gained 8% over the previous week and moved back above $100 a barrel. Higher fuel costs were already evident in August’s US inflation figures, with gasoline accounting for more than a third of the monthly CPI increase.
Sterling has its own busy week ahead after the UK economy performed considerably better than expected in July. GDP increased by 0.4% during the month, against economists’ expectations for no growth, with services providing the largest contribution. The result followed solid growth during the first half of the year and came as Bank of England Governor Andrew Bailey said recent economic data had been somewhat stronger than he had expected.
Attention now moves to the UK labour market on Tuesday and inflation on Wednesday, immediately before the Bank of England announces its latest decision on Thursday. All 65 economists surveyed by Reuters between 4 and 8 September expect Bank Rate to remain unchanged at 3.75%, while almost 90% expect rates to remain at that level for the rest of 2026. The Bank’s July decision was more divided, with three of nine policymakers voting for an increase.
The euro enters the week after the European Central Bank raised all three of its key interest rates by a quarter point on Thursday. The deposit rate will increase to 2.50% from 16 September. The ECB said the Middle East conflict continued to generate inflation pressure and revised its inflation projections higher for 2027 and 2028, while maintaining that future decisions would remain data dependent.
That leaves monetary policy at the centre of the major currency markets this week. The Federal Reserve announces its decision on Wednesday, followed by the Bank of England on Thursday, while the ECB’s latest increase takes effect on Wednesday. Both decisions come as higher energy costs remain an important part of the inflation picture across the US, UK and euro area.
Events to Watch This Week:
Tuesday 15 September: UK labour market data
Wednesday 16 September: UK CPI for August; Federal Reserve interest-rate decision
Thursday 17 September: Bank of England interest-rate decision
The Fed and Bank of England decisions make this one of the most significant central-bank weeks of the month for businesses with sterling, dollar and euro requirements.
Speak to the Orbis dealing team ahead of this week’s key events to discuss your upcoming currency requirements.
London Office: +44 (0) 203 918 5620 | Dubai Office: +971 54 287 0072
