- GBP/USD gains to near 1.3395 as hawkish BoE prospects strengthen British Pound.
- The BoE is almost certain to deliver an interest rate hike in the November policy meeting.
- UK’s inflation grew at a faster-than-expected pace in September.
The British Pound (GBP) trades 0.1% higher at around 1.3395 against the US Dollar (USD) during the European trading session on Wednesday. The British currency strengthens as hotter-than-expected United Kingdom (UK) Consumer Price Index (CPI) data for September has prompted hawkish Bank of England (BoE) expectations.
Earlier in the day, the Office for National Statistics (ONS) has reported that the headline CPI grew by 3.5% Year-on-Year (YoY), faster than 3.4% estimates and the August reading of 3.1%. The core CPI – which strips off volatile components of food, energy, alcohol and tobacco – also grew stronger by 2.8% YoY vs. estimates of 2.7% and the previous release of 2.6%.
BoE path seen as firmly higher as markets price multiple UK rate hikes
Analysts at Societe Generale argue that the near-term policy path is now largely predetermined, with “for the BoE, a 25bp increase bank rate in November is locked in.” They add that money markets are already discounting a more extended tightening cycle, noting that they are “aggressively priced for another three hikes by next summer to 4.75% unless the progress in inflation stalls and the economy extends its resilient performance into 2027.”
Going forward, investors will focus on the UK Retail Sales data for September and flash S&P Global PMI data for October scheduled for Friday.
Meanwhile, the US Dollar is under pressure due to concerns over United States (US) Artificial Intelligence (AI)-growth optimism and expectations that the Federal Reserve (Fed) will keep interest rates steady in the policy meeting later this month.
GBP/USD Technical Analysis
In the daily chart, GBP/USD trades at 1.3391. The pair holds above the 20-period exponential moving average (EMA) at 1.3303, keeping the near-term tone constructive as price extends its recovery from recent lows. The Relative Strength Index (RSI) at 57.5 leans to the bullish side without yet signaling overbought conditions, suggesting room for further upside while the pair remains supported by the reclaimed short-term trend baseline.
On the downside, initial support is seen at the 20-day EMA at 1.3303, with the latest close at 1.3391 acting as a nearby pivot level for any corrective pullbacks. Looking up, the pair could enter a fresh upside leg if it manages a decisive break above 1.3410.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.