Pound Supported by Hot CPI as Dollar Holds Steady Ahead of FOMC Minutes

UK CPI jumped to 2.9% in July, a four-month high, driven by rising energy prices, with core inflation printing marginally above forecast at 2.6%. Sterling found modest support in the early European session, holding above 1.3550 against the dollar.

The euro edged higher after Germany's ZEW sentiment survey beat expectations, with EUR/USD trading near 1.1594 ahead of eurozone HICP data due today. ECB President Lagarde speaks later in the session. The dollar index held steady at 99.48 as attention turns to tonight's FOMC minutes from July's historic split vote, a key catalyst for near-term dollar direction. Geopolitical pressure intensified after Iran targeted maritime traffic in the Strait of Hormuz, pushing Brent briefly above USD 92/bbl. The yen strengthened on growing conviction around a September BoJ rate hike. Attention now turns to FOMC minutes arriving this evening, and Friday's UK retail sales.

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GBP: Inflation Gives Sterling a Firmer Footing

GBP/USD: 1.3560 | EUR/GBP: 0.8554

UK Consumer Price Index (CPI) inflation accelerated to 2.9% YoY in July from June's 2.6% print. The British Pound gained immediate ground against the US dollar. GBP/USD pushed up from Asian session lows of 1.3535 to trade near 1.3560 in the early European session. Higher household gas prices pushed headline inflation to a four-month-high. The core CPI print held steady at 2.6% YoY. Input producer prices cooled beyond forecasts, while retail prices expanded at their quickest pace since March.

Input Producer Price Index (PPI) rose 4.9% YoY in July. That was down from a revised 7.4% in June. Output PPI rose 3.1% from 3.5%. Input prices fell 1.7% MoM, while output prices rose 0.2%.

The headline CPI reading sits well above the Bank of England’s (BoE) 2.0% target. Mixed employment figures earlier this week showed stable unemployment and accelerating wage growth.

The Bank of England (BoE) held the Bank Rate at 3.75% in July with a 6-3 vote. Three members backed a 25-basis-point increase. The July policy report also warned that higher energy prices could lift inflation later in the year. Money markets currently price in one BoE rate hike by year-end. This expectation lifts the bank's rate from 3.75% to 4.00%; analysis signals minimal policy impetus for aggressive near-term tightening. However, stubborn price pressures keep downside risks to Sterling contained.

Sterling therefore has two forces pulling at it. Higher headline inflation can support the pound through interest-rate expectations. Softer underlying inflation and weaker labour data can limit that support.

With one hike priced by year-end and the policy debate open, GBP/USD has struggled to break convincingly above 1.3570. GBP/JPY at 215.70 reflects the additional dimension of a resurgent yen. The EUR/GBP pair pulled back toward 0.8555 as sterling attracted modest demand.

Friday's UK retail sales and GfK Consumer Confidence figures could add more weight to the growth side of the BoE equation.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3570, 1.3600 and Support sits at 1.3500, 1.3480

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8580, 0.8600 and Support sits at 0.8530

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EUR: Euro Edges Higher on ZEW Beat and ECB Conviction

EUR/USD: 1.1604 | EUR/GBP: 0.8554

EUR/GBP eased towards 0.8554 after the UK CPI release. Sterling's inflation boost gave the pound some support against the euro. The cross still sits in a tight range.

The euro has its own inflation question today. Eurozone HICP inflation data arrives today. Consensus calls for 2.9% YoY in July and 2.8% MoM, with core HICP expected at 2.5% YoY. A print in line with or above those estimates could reinforce the case for an ECB September hike and provide fresh impetus for the euro.

ECB chief economist Philip Lane reiterated on Tuesday that eurozone inflation at 3% is too high, despite appearing moderate relative to previous cycle peaks. That view underpins expectations of an active ECB rate hike. The ECB Watch Tool shows a ~90% to 94% probability of a 25-basis-point hike to 2.50% at the September policy meeting. ECB President Christine Lagarde is due to speak later on Wednesday; her remarks could provide investors with further cues on the ECB's outlook and the near-term direction of the euro.

For EUR/GBP, the policy gap matters more than the headline inflation race. Both economies face higher energy costs. Both central banks must separate temporary energy pressure from persistent domestic inflation. That leaves the cross sensitive to any shift in expectations for the BoE and ECB.

EUR/USD traded around 1.1590 in the early European session, testing the 1.16 level. The pair sits above its 100-day moving average (MA).

German data have offered some support for the euro. The ZEW economic sentiment index rose to 34.2 in August from 26.3. The current conditions index also improved. That stronger sentiment can lend some support to EUR/USD if the inflation data do not undermine the outlook.

The euro has held its ground against both sterling and the dollar this week, supported by better-than-expected German sentiment data and ECB rate conviction. Policy divergence between the ECB and a steadying Federal Reserve (Fed) supports the Euro's underlying strength.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1615, 1.1650 and Support sits at 1.1570

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USD: The Dollar Steadies as FOMC Minutes Take Centre Stage

DXY: DXY: 99.44

The dollar index (DXY) stood around 99.48. The dollar has held firm despite a softer rate outlook. Traders now await the minutes from the Federal Open Market Committee's (FOMC) July meeting.

The Fed held its target range at 3.50% to 3.75% in July, voting to hold interest rates unchanged in a historic split decision. At the first monetary policy meeting under new Fed Chair Kevin Warsh, the vote was 9-3. Three committee members voted in favour of a hike. Several others subsequently flagged willingness to back a hike if incoming data warranted it. The minutes could reveal the depth of that internal debate and the committee's near-term policy stance, and may further shift rate expectations.

The CME FedWatch Tool currently shows softer hike expectations following last week's data releases, which eased Fed rate-hike pricing. Yet that softer policy outlook has not generated any material sell-off in the dollar. Long dollar positions are holding.

The FOMC minutes carry particular weight at this juncture. Warsh's forward guidance was limited at the July meeting. A more hawkish read from the minutes, particularly if it confirms broad support for further tightening, could revive dollar demand and put pressure on EUR/USD's 1.1614 resistance level. A dovish tilt, or evidence of deep internal disagreement, could open the door to a broader unwinding of the dollar. The dollar's direction from here is, in effect, a reading of how much further the Fed intends to push.

Compounding the dollar's near-term uncertainty is the geopolitical dimension. Brent Crude briefly topped $92 per barrel overnight after the UAE missile alerts and subsequent confirmation from Abu Dhabi that two missiles launched from Iran targeted maritime traffic in the strait. The UAE suspended trade and financial transactions with Tehran in response. UK maritime authorities separately reported a vessel strike whilst leaving the Strait of Hormuz. A cargo ship was also struck off the coast of Yemen. The incidents signal widening disruption across key Gulf shipping routes. Elevated crude prices typically create a complex set of pressures on the dollar; safe-haven inflows can support DXY, but the inflationary impact of sustained oil price rises complicates the Fed's calculus.

Thursday brings the weekly US Initial Jobless Claims report, along with the four-week average, a key real-time read on US labour market conditions that could feed directly into the Fed's data-dependent framework ahead of its next decision. The FOMC minutes this afternoon represent the near-term catalyst for directional movement in dollar pairs.

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Other currencies: Yen and commodity FX watch oil and yields

AUD/USD: 0.7073 | NZD/USD: 0.5873 | USD/JPY: 159.19 | GBP/JPY: 215.70

USD/JPY traded near 159.19 while GBP/JPY sat around 215.70. The yen has modestly strengthened against several major currencies after a period of weakness.

Expectations for a September Bank of Japan (BoJ) rate increase have helped support the yen. Friday's Japanese CPI data could add another test. The July national CPI release is scheduled for this Friday.

AUD/USD stood near 0.7073 while NZD/USD traded around 0.5873. Both pairs remain sensitive to the dollar's rate path and shifts in global risk sentiment. Lower US yields can support higher-beta currencies. Higher oil prices can complicate that picture for import-dependent economies.

Across Asia FX, the South Korean won (KRW) and the Taiwan dollar (TWD) led regional gains on Wednesday. A renewed surge in crude oil above $92 could pose headwinds for the Thai baht and the Philippine peso, both of which are navigating economic slowdowns. In Indonesia, the rupiah's recent stabilisation, partly supported by Bank Indonesia policy measures, has created space for BI to hold its policy rate at 5.75%. Indonesia's weakened trade balance and tight dollar liquidity conditions keep the rupiah's outlook cautious.

The broader Asia FX story splits cleanly along two axes: tech-linked currencies benefit from a soft US rate environment; commodity and current-account-sensitive currencies face the crude oil wildcard.

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Current Rate Table

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Market lookahead:

Wed, Aug 19

• FOMC Minutes

Thurs, Aug 20

• Eurozone Consumer Confidence (Aug)

Fri, Aug 21

• UK GfK Consumer Confidence
• UK Retail Sales (Jul)
• Global PMI releases Services, Manufacturing and Composite (Aug)

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