The latest price data for the UK revealed that inflation remained steady but did not continue to ease as analysts had been expecting.
The Consumer Price Index (CPI) remained steady at 2.7% in September compared to a consensus estimate of 2.6%.
Core CPI, on the other hand, ticked higher to 2.2% from 2.0% in the prior month.
The House Price Index (HPI) also increased to 3.8% in September from 3.3% in July for the fastest rise since October 2010. UK officials will keep a close eye on house prices due to the 'Help to Buy' scheme aimed at supporting the housing sector. However, some observers are concerned that it will lead to higher prices and a potential housing bubble.
High prices could re-spark doubts about the Bank of England's (BOE) 'forward guidance', which forecasts that rates will not be raised until 2016. Nonetheless, the country's high inflation, which hit 2.9% in June, appears to be coming down to the central bank's target of 2% over the medium-term. Some analysts remain skeptical.
Meanwhile, other data points showed an easing of underlying price pressures. For instance, producer output and input prices slowed considerably from the prior month and in comparison to market forecasts.
Producer prices could have been affected by a higher exchange rate
for the sterling pound. The BOE had already made references to the impact of a high exchange rate on prices at its latest monetary policy meeting.
PPI (Producer Price Index) input fell -1.2% on a monthly basis compared to -0.7% last month and the -0.1% expected.
Similarly, PPI output fell -0.1% compared to a 0.2% rise in July and the 0.3% rise expected.
Retail price inflation also slowed, falling to 3.2% from 3.3%.
The GBP/USD jumped above 1.60 moments before the scheduled release of the price data and then began to sell-off, which momentarily held above earlier levels. However, the bearish move would gather momentum and the pound soon tested $1.5035, a support level and a bullish trend line from July's low.
Although the price data was mixed, it re-sparks some concerns about the Bank of England's 'forward guidance' and makes an argument for a stronger sterling pound. However, looking across other currency pairs, it is evident that the price data was not the driving force in the forex
market on Tuesday morning.
The US dollar
went through a bout of strength. Although there appeared to be no news to justify the move, dollar strength was simultaneously evident in both the EUR/USD and the USD/JPY. EUR/USD fell despite strong ZEW surveys.
Looking at the EUR/GBP to remove the dollar-induced volatility, the pound gained against the euro. As such, EUR/GBP set an intraday low of 0.8466, modestly lower from 0.8479 after the release.
Eyes will turn to Washington to see if there is any fresh news concerning the US debt ceiling debate.