Pound Sterling weakens as UK core inflation surprisingly cools down

• The Pound Sterling underperforms its peers as UK CPI data signals that price pressures aren't as high as expected.
• UK core inflation unexpectedly fell to 3.5% in September, while headline inflation steadied.
• Optimism surrounding US-China trade talks continues to support the US Dollar.

The Pound Sterling (GBP) faces intense selling pressure against its major peers on Wednesday after the release of the United Kingdom (UK) Consumer Price Index (CPI) data for September.

The Office for National Statistics (ONS) reported that the core CPI – which excludes volatile components of food, energy, alcohol and tobacco – grew by a less-than-expected 3.5% on an annual basis. Economists forecasted underlying price pressures to have risen by 3.7% against the prior reading of 3.6%.

Headline inflation rose steadily by 3.8% on year, slower than estimates of 4.0%. On a monthly basis, prices remained flat after growing by 0.3% in August.

Inflation in the services sector, which is closely tracked by the Bank of England (BoE), remained steady at 4.7%.

Signs of easing price pressures would bolster market expectations of more interest rate cuts by the BoE in the remainder of the year. Last week, BoE dovish expectations increased after the release of the employment data for the three months ending August, which showed a higher jobless rate and a slowdown in wage growth.

Daily digest market movers: Pound Sterling continues underperformance against US Dollar

• The Pound Sterling declines to near 1.3330 against the US Dollar during Wednesday’s European session. The GBP/USD pair extends its losing streak for the fourth trading day. The Cable slumps after the release of the UK inflation data, which showed signs that price pressures have peaked for now.
• Additionally, the strength of the US Dollar is also contributing to weakness in the GBP/USD pair. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near Tuesday’s high around 99.00.
• The US Dollar edges up due to optimism that the United States (US) and China will reach a trade deal soon. US President Donald Trump has been expressing confidence that both nations will reach a fair deal. On Tuesday, Trump also maintained a positive tone towards the US-China trade deal, but expressed caution over the likelihood of the meeting with Chinese leader Xi Jinping in South Korea later this month.
• “So now we're going to have a fair deal, and I think we're going to have a very successful meeting,” Trump said on Tuesday. However, the US president added later that the meeting “Maybe it won't happen," Yahoo news reported.
• Meanwhile, growing hopes that the US federal government could reopen this week have also supported the US Dollar. The US Senate Minority Leader Chuck Schumer said on Tuesday that the Democrat House leader Hakeem Jeffries and him reached out to Trump to sit down and negotiate a possible reopening of the government, Reuters reported.
• On the economic front, investors await the delayed US CPI data for September, which will be published on Friday. The inflation data will significantly influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
• Economists expect the US headline CPI to have grown at a faster pace of 3.1% on an annuali basis, up from the prior 2.9% advance, with core figures rising steadily by 3.1%.

Technical Analysis: Pound Sterling extends downside to near 1.3330

The Pound Sterling falls further to near 1.3330 against the US Dollar on Wednesday. The GBP/USD pair slides after failing to exceed the level marked by the 20-day Exponential Moving Average (EMA), which trades around 1.3407.

The 14-day Relative Strength Index (RSI) falls to near 40.00. A fresh bearish momentum would emerge if the RSI drops below that level.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.