Why is the British Pound wavering as UK inflation overshoots and public debt rises?

• GBP/USD fluctuated near 1.3475, having failed on Tuesday to clear one-month highs at 1.3400.
• The case for a BoE rate increase next month gained support as UK inflation exceeded forecasts in September.
• Any support for the Pound may have been counterbalanced by higher UK government borrowing.

The British Pound (GBP) traded unevenly against the US Dollar (USD) on Wednesday as markets weighed stronger-than-forecast UK Consumer Price Index (CPI) data against another rise in UK government debt. After touching an intraday low of 1.3364, GBP/USD recovered towards 1.3375. The pair continues to consolidate gains made over the past few days, having been unable to sustain trading above 1.3400 on Tuesday.

September's UK Consumer Price Index (CPI) increased by 0.4%, National Statistics data showed. Although slightly below August's 0.5% rise, the figure exceeded the market forecast of 0.3%. On a year-on-year (Y-o-Y) basis, CPI growth picked up from 3.1% in August to 3.5%, surpassing the consensus estimate of 3.4%.

Excluding volatile food and energy prices, core CPI rose 2.8% Y-o-Y, also exceeding expectations. The reading was above the market consensus of 2.7% and followed a 2.6% Y-o-Y increase in August.

Could September's further rise in UK government borrowing weigh on the Pound?

National Statistics also reported an increase in the UK's Public Sector Net Borrowing alongside the inflation release. Borrowing reached GBP 24.52 billion in September, compared with GBP 17.25 billion in August. The figures may have revived longstanding concerns over the UK's high public debt, exerting some downward pressure on the Pound.

Expectations that the Bank of England might raise interest rates at its November 5 meeting have been reinforced by the latest data. Wednesday's releases came after Tuesday's unexpected fall in the ILO Unemployment Rate to its lowest in more than a year. Last week's upbeat Gross Domestic Product (GDP) figures have also helped strengthen those expectations.

A modest recovery in the US Dollar on Wednesday has seen the Dollar Index (DXY) recoup part of its losses after five days of selling. A pause at next week's Federal Reserve (Fed) monetary policy meeting is already priced in by investors. Meanwhile, elevated oil prices and uncertainty over the Middle East conflict continue to raise concerns, directing safe-haven demand towards the Greenback.