GBP/USD nudges higher on UK inflation as firm US data restrain Pound

GBP/USD trades around 1.3515 on Wednesday, gaining a modest 0.06% at the time of writing, as investors digest the latest inflation figures from the United Kingdom (UK) and assess the outlook for monetary policy on both sides of the Atlantic.

Data released earlier by the Office for National Statistics (ONS) showed that the UK Consumer Price Index (CPI) accelerated to 3.3% YoY in March, matching market expectations and rising from 3% in February. On a monthly basis, inflation increased by 0.7%, above forecasts of 0.6% and marking its strongest rise in nearly a year.

However, underlying price pressures showed some signs of easing. Core inflation, which excludes food, energy, alcohol and tobacco, rose by 3.1% YoY, slightly below the 3.2% expected.

The combination of higher headline inflation and softer underlying measures leaves the policy outlook relatively balanced. While rising energy costs linked to tensions in the Middle East have pushed overall prices higher, the moderation in core inflation could allow the Bank of England (BoE) to keep its benchmark interest rate unchanged at 3.75% at the upcoming April 30 meeting.

Beyond inflation, producer and retail price data also surprised to the upside. The Input Producer Prices Index jumped 4.4% MoM in March and 5.4% on a yearly basis, while retail prices increased by 0.8% MoM and 4.1% compared with a year earlier, both exceeding market expectations.

The geopolitical environment remains another key driver for currency markets. Although United States (US) President Donald Trump announced an extension of the ceasefire related to tensions involving Iran, uncertainty persists after the collapse of a planned round of negotiations. Washington continues to maintain a blockade on Iranian vessels, while Tehran has warned of possible retaliation, keeping risk sentiment fragile.

At the same time, the US Dollar (USD) is finding support from strong domestic economic data. The US Census Bureau reported on Tuesday that Retail Sales rose by 1.7% MoM in March, significantly above expectations of 1.4% and accelerating from February’s revised 0.7% increase. On an annual basis, Retail Sales grew by 4%, matching the previous reading.

In addition, remarks from Federal Reserve (Fed) Chair nominee Kevin Warsh helped reassure markets about the independence of the central bank’s policy decisions, which further supported the US Dollar.

Looking ahead, investors are expected to remain cautious in the coming days as several key UK indicators are scheduled for release. The preliminary S&P Global Purchasing Managers Index (PMI) figures for April are due on Thursday, followed by the March Retail Sales report on Friday, both of which could generate additional volatility for the Pound Sterling (GBP).