Pound Sterling trades with caution ahead of UK inflation.

The Pound Sterling drops slightly to near 1.3200 against the US Dollar after better-than-expected US Retail Sales data.
Investors expect the BoE to leave interest rates unchanged at 5% on Thursday.
The UK core CPI is estimated to have accelerated to 3.5% in August.

The Pound Sterling (GBP) faces selling pressure against its major peers on Tuesday. The British currency drops as investors turn cautious ahead of the United Kingdom (UK) Consumer Price Index (CPI) data for August, which will be published on Wednesday. The inflation data will significantly influence market speculation for the Bank of England (BoE) interest rate path for the last quarter of the year as it is expected to leave interest rates unchanged on Thursday.

The UK CPI report is expected to show that the annual core inflation – which excludes volatile components such as food, energy, alcohol, and tobacco – grew at a faster pace of 3.5% from 3.3% in July, with headline inflation steady at 2.2%.

Any signs showing that UK inflation remains persistent would result in the BoE emphasizing the need to keep interest rates unchanged at their current levels in November’s policy meeting. On the contrary, soft inflation figures would allow the BoE to deliver dovish guidance. Currently, financial market participants expect that the BoE will cut interest rates one more time, either in November or in December.

In the UK CPI report, investors will keenly focus on the Service inflation data, which is closely tracked by BoE officials. In July, annual service inflation decelerated sharply to 5.2%, the lowest figure in more than two years.