The Pound Sterling (GBP) came under heavy selling pressure on Wednesday after UK inflation data showed slower-than-expected growth in September, weakening the case for further rate hikes by the Bank of England (BoE).
According to the Office for National Statistics (ONS), the core Consumer Price Index (CPI)—which excludes food, energy, alcohol, and tobacco—rose by 3.5% annually, missing the forecast of 3.7% and slightly below the previous 3.6%.
Headline inflation also eased, rising 3.8% year-on-year versus expectations of 4.0%. On a monthly basis, prices were unchanged after a 0.3% increase in August.
Service sector inflation, closely monitored by the BoE, held steady at 4.7%, reinforcing signs of cooling price pressures across the economy.
The softer readings strengthened expectations that the BoE may deliver additional rate cuts later this year, following recent labor market data showing a rising unemployment rate and slower wage growth.
Market Reaction: GBP Weakens Against USD
The Pound slid to around 1.3330 against the US Dollar in Wednesday’s European session, marking its fourth straight day of losses. The decline deepened after the CPI data signaled that inflation may have peaked, reducing the likelihood of further tightening by the BoE.
The US Dollar, meanwhile, continued to strengthen. The US Dollar Index (DXY) hovered near 99.00, supported by optimism surrounding potential progress in US-China trade talks. President Donald Trump expressed confidence that both nations are moving toward a “fair deal,” though he remained cautious about a planned meeting with Chinese President Xi Jinping in South Korea later this month.
In addition, expectations that the US federal government could reopen soon added to Dollar strength. Senate Minority Leader Chuck Schumer said that he and House Leader Hakeem Jeffries reached out to Trump to discuss possible negotiations for ending the government shutdown, according to Reuters.
Looking ahead, traders are focused on the upcoming US CPI data for September, set to be released on Friday. Economists anticipate headline inflation to accelerate to 3.1% annually from 2.9%, with the core rate holding steady at 3.1%, potentially shaping the Federal Reserve’s next policy move.
Technical Outlook
The GBP/USD pair remains under pressure, trading near 1.3330 after failing to break above the 20-day Exponential Moving Average (EMA) at 1.3407.
The 14-day Relative Strength Index (RSI) has fallen toward 40.00, suggesting weakening momentum. A drop below this level could trigger renewed selling interest.
On the downside, the August 1 low of 1.3140 serves as a crucial support zone. Conversely, any rebound toward the 1.3500 psychological level is likely to face strong resistance.
