- GBP/USD touched its lowest level in nearly two months below 1.3000 on Wednesday.
- Annual CPI inflation in the UK softened to 1.7% in September.
- The near-term technical outlook suggests that the bearish bias remains intact.
Following a consolidation phase near 1.3100 in the Asian session on Wednesday, GBP/USD turned south and touched its lowest level since August 20 below 1.3000. The pair could continue to stretch lower in the near term, with markets reassessing the Bank of England's (BoE) policy outlook after soft inflation readings.
The UK's Office for National Statistics (ONS) reported that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), softened to 1.7% in September from 2.2% in August. This reading came in below the market expectation of 1.9%. Additionally, the Producer Price Index (PPI) - Input declined by 2.3% on a yearly basis. Finally, the Retail Price Index rose 2.7% (YoY), down sharply from the 3.5% increase recorded in August.
According to Reuters, markets are currently pricing in a 70% probability of the BoE opting for two consecutive 25 basis points (bps) rate cuts in November and December, compared to a less-than-50% probability ahead of the release of the UK inflation data.
The US economic calendar will not feature any data releases that could influence the US Dollar's (USD) valuation in the second half of the day. Hence, the negative impact of the UK inflation data on Pound Sterling could continue to dominate GBP/USD's action.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) on the 4-hour chart edged slightly higher after testing 30 when GBP/USD dropped below 1.3000. This technical development suggests that the pair's bearish bias remains intact while investors allow for a technical correction before the next leg lower.
Once 1.3000 (round level, static level) is confirmed as resistance, 1.2940 (static level) and 1.2900 (static level, round level) could be seen as next support levels. If the pair stabilizes above 1.3000, resistance levels could be spotted at 1.3050 (static level) and 1.3080 (50-period Simple Moving Average).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD depreciates due to market caution ahead of US NFP
The Australian Dollar remains subdued against the US Dollar for the second consecutive day on Friday. The AUD/USD pair faces modest headwinds as the USD steadies ahead of the upcoming Nonfarm Payrolls report in the North American session.
USD/JPY: Japanese Yen stands firm near a multi-month high against a broadly weaker USD
The Japanese Yen continues to be underpinned by increasing bets for more BoJ rate hikes. Trade tariff jitters and the risk-off mood further seem to underpin demand for the safe-haven JPY. Expectations for further policy easing by the Fed weigh on the USD and the USD/JPY pair.
Gold price remains depressed ahead of US NFP; trade jitters to limit losses
Gold price trades with negative bias for the second straight day, though a combination of factors continues to act as a tailwind ahead of the crucial US NFP report later this Friday. Rising trade tensions continue to weigh on investors' sentiment.
Crypto AI Tokens: Why FET, NEAR and RNDR could outperform BTC after White House Summit
The White House Crypto Summit is scheduled to hold on Friday. Rather than double-down on BTC, sector-wide price trends show that investors are leaning towards Crypto AI altcoins.
Make Europe great again? Germany’s fiscal shift is redefining the European investment playbook
For years, Europe has been synonymous with slow growth, fiscal austerity, and an overreliance on monetary policy to keep its economic engine running. But a major shift is now underway. Germany, long the poster child of fiscal discipline, is cracking open the purse strings, and the ripple effects could be huge.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.