UK August Inflation figures were released this morning, climbing back above 3% with a sharp rise in fuel costs having contributed to the increase. When we compare the monthly inflation figures, prices rose 0.5%, notably more than the 0.3% in the exact same period just 12 months ago. The biggest question this poses now is what the interest rate path ahead looks like for the Bank of England, with markets now predicting a 97% probability of at least one hike to 4% by year-end.
Elsewhere, we also saw transport prices rise by nearly 5% in the year leading up to August. Again, climbing from 3.6% just one month earlier, but by nearly 3 times as much from August 2025. Motor fuel costs as mentioned contributed considerably to the overall figure, with prices having risen by 23% in the 12 months leading up to August – this was broken down by Petrol prices increasing by 9.1p p/litre, and Diesel climbing 14.2 p p/litre.
Government bonds across Europe have also climbed to levels near historic highs, as short-term borrowing costs continue to climb as markets are now effectively all but guaranteeing an interest rate hike later this evening by the Federal Reserve in The US. 10-year German Bond Yields are hovering around 3.544%, whilst two-year bonds are close to 3.25%. Both respectively at 15-year highs and 3-year highs.
Turning our focus to the economic calendar, we have Euro-Zone Industrial Production out at the top of the hour. Both monthly and yearly comparative figures suggest production will have slowed across Europe by nearly 1% on average, which only backs up concerns around Europe’s economic activity currently.
As we move into the afternoon, US Retail Sales for August are set to be released this afternoon. Both releases are to set to show an increase of 1% on average which will be promising signs for The Federal Reserve as they look to implement interest rate hikes. We could expect to see US Dollar strength after the release, as it would be encouraging signs that consumers are still spending alongside the increased financial pressures of inflation.
Moving onto The Federal Reserve, they have their interest rate meeting later this evening. Markets are currently pricing in a 92% probability that a 25-basis point hike will be implemented – crucially this will be the first-rate hike in The US in nearly three years. With markets all but guaranteeing this, the press conference will be of importance as traders will digest any clues or insights into whether this will be a standalone hike, or one of many to come.
GBP/EUR 1.1656 GBP/USD 1.3460 GBP/AED 4.9460
GBP/AUD 1.8887 GBP/CHF 1.1018 GBP/CAD 1.8756
GBP/NZD 2.3396 EUR/USD 1.1532 GBP/ZAR 21.9109