The British pound has lost ground in Tuesday trade. In the North American session, GBP/USD is trading at 1.3174, down 0.58% on the day. On the release front, British CPI edged up to 3.0 percent, matching the estimate. BoE Governor Mark Carney testified before the Treasury Select Committee in London. There are no major US indicators on the schedule. On Wednesday, the UK releases wage growth and unemployment data, and the US will publish Housing Starts and Building Permits.
British inflation continues to accelerate, as CPI, the primary gauge of consumer spending, showed that inflation in September was 3.0% higher than a year ago. This marked the fastest rise in inflation since April 2012. The continuing rise in inflation is primarily due to the weak British pound, which has dropped 12 percent since the Brexit vote in June 2016. The CPI release likely means that the Bank of England remains on track to raise interest rates at its November policy meeting. Inflation was on the mind of lawmakers on Tuesday, who pressed Carney when he testified before a parliamentary committee. Carney said that he expected inflation would peak in October or November, and that the bank had refrained from acting earlier to raise rates in order to lower inflation, saying that high inflation was a "trade-off" in order to hamper the economy.
The Brexit talks are at a deadlock, as the sides have made little progress after several rounds of negotiations. Prime Minister Theresa May is keen to talk trade with the Europeans, but the latter have conditioned trade talks on progress being reached on a number of issues, such as Britain’s payment when it leaves the European Union, the status of the border with Northern Ireland and the jurisdiction of the European High Court on European citizens living in the UK. The two sides remain far apart on all of these issues, and each party has criticized the rigid positions of the other. The EU holds a summit on Thursday, and could announce that they won’t talk trade with Britain until 2018. The lack of progress means that the possibility of a ‘hard Brexit’, in which Britain would leave with no deal being reached, is growing. BoE Governor Mark Carney acknowledged on Tuesday that the Bank has made contingency plans in case there is no agreement. However, British businesses are lobbying hard for an agreement, and want a 2-year interim period, such as a temporary customs union with the EU, in order to soften the blow of leaving the EU.
