empty
21.11.2024 12:50 AM
GBP/USD: UK Inflation Accelerates, but the Pound Remains Under Pressure

The GBP/USD pair hit a weekly high on Wednesday but failed to hold within the 1.27 range. The UK inflation report provided only temporary support to the pound, although almost all components of the release were in the green zone. But the dollar again turned out to be stronger—after a temporary surge to the 1.2713 mark, it later retreated to the 1.26 range.

This image is no longer relevant

Notably, GBP/USD traders have ignored favorable fundamentals for the pound for two consecutive days. On Tuesday, Bank of England officials voiced concerns about inflation risks, and Wednesday's report further highlighted inflationary pressures in October, as if confirming the voiced concerns. However, the pair struggled to capitalize on these factors, although it tested the 27th figure.

Let's start with the inflation report. First, the inflation data surprised markets with stronger-than-expected headline numbers. For example, the monthly Consumer Price Index rose to 0.6% (forecast: 0.4%), marking the highest growth rate since March. Annual CPI increased to 2.3% (forecast: 2.2%). The indicator was in the green zone, exceeding the BoE's target range and hitting a multi-month high (October saw the strongest growth rate since April this year).

The Core CPI, excluding food and energy prices, also supported the pound, climbing to 3.3% YoY (forecast: 3.1%).

The Retail Price Index (RPI), used in wage negotiations, matched forecasts but still demonstrated an upward trend. In monthly terms, the RPI returned to positive territory at 0.5%. In annual terms, the index rose to 3.4% in October after falling to 2.7% in September.

The monthly producer purchase price index left the negative zone for the first time since April this year, rising to 0.1%. In annual terms, the indicator came in at -2.3% y/y (with a forecast of a decline to -3.0%).

The producer selling price index also ended up in the green zone: 0.0% m/m (with a forecast of -0.1%), -0.8% y/y (with a forecast of -1.0%).

The data confirms that the BoE will likely maintain its current monetary policy stance at its next meeting. Recent speeches by BoE Governor Andrew Bailey and other committee members (Claire Lombardelli, Catherine Mann, Alan Taylor) were moderately hawkish, emphasizing concerns about inflation risks without signaling imminent rate hikes. The latest inflation data reinforces the likelihood of a December pause in rate cuts as the BoE monitors inflation sustainability.

The October report on inflation growth in the UK should be viewed through the prism of these speeches: there is no doubt that if the release had been made public the day before the parliamentary hearings, the rhetoric of the BoE's management would have been more rigid. However, it is easy to put 2 + 2 together here, concluding that the central bank will pause in reducing the interest rate in December.

Why do GBP/USD traders react so calmly to such a unipolar information flow? In my opinion, there are several reasons.

Let's start with the fact that a probable pause at the December meeting of the BoE is not a sensation. This has been discussed for a long time. Cautious assumptions have given way to confident forecasts, especially after Donald Trump's victory and following the results of the November meeting of the English central bank. Let me remind you that Andrew Bailey made it clear at the final press conference that the BoE may take a wait-and-see position at the next meeting. According to him, the central bank needs to ensure that inflation remains close to the target level on a sustainable basis, "so the pace of easing should not be too fast or too sharp." The latest inflation report only confirmed the assumptions of many analysts.

The dollar remains a significant anchor for GBP/USD, which is still in high demand. After a three-day decline, the US Dollar Index (DXY) rebounded to 106.65, supported by risk-off sentiment and increased confidence that the Fed will hold rates steady in December. According to the CME FedWatch Tool, the probability of no rate cut in December has risen to 45%, up from just 10-15% last week, following Powell's hawkish remarks in Dallas, where he said that the central bank should not rush to lower the interest rate). Such a significant decline in dovish sentiment supports the American currency.

The UK inflation report provided only a brief boost for the pound, which surged to 1.2713 before retreating. The pound closely mirrors the dollar's movements and is unlikely to establish a solid independent trend soon. Corrective spikes should be viewed without significant catalysts as opportunities to open short positions. The nearest (and so far the main) target of the downward movement is the 1.2600 mark, aligning with the lower Bollinger Bands line on the H4 chart.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

EUR/USD: Inflation, the Federal Reserve, and Market Expectations

Inflation in the U.S. has accelerated again. The Consumer Price Index (CPI) report released on Wednesday favored dollar bulls, with all components exceeding expectations. Given recent statements by Federal Reserve

Irina Manzenko 23:36 2025-02-12 UTC+2

Has the Euro Forgotten About Parity?

At the end of 2024, many analysts were discussing the possibility of EUR/USD reaching parity. The U.S. economy was noticeably stronger than its European counterpart, with the Federal Reserve's December

Marek Petkovich 23:36 2025-02-12 UTC+2

EUR/JPY: What Are the Prospects for Further Growth?

This week, the EUR/JPY pair has been showing a steady recovery from its lowest level seen since September 2024. Today, the pair continues its upward momentum for the third straight

Irina Yanina 10:53 2025-02-12 UTC+2

Jerome Powell's Speech Fails to Impress Currency Traders

The euro and pound responded in a rather unusual way to yesterday's comments from Fed Chair Jerome Powell, who stated that the central bank sees no need to rush with

Jakub Novak 10:24 2025-02-12 UTC+2

What to Pay Attention to on February 12? A Breakdown of Fundamental Events for Beginners

There are very few macroeconomic events scheduled for Wednesday. The main highlight of the day is the U.S. inflation report, which is significant due to its direct impact

Paolo Greco 08:44 2025-02-12 UTC+2

What to Watch on February 11th? Fundamental Event Analysis for Beginners

There are no scheduled macroeconomic events for Tuesday. However, there will be two speeches by central bank governors today. The euro and the pound continue to show bearish tendencies

Paolo Greco 10:58 2025-02-11 UTC+2

GBP/JPY: Analysis and Forecast

The GBP/JPY pair is exhibiting a moderate intraday recovery, rising from levels last seen in September of last year and climbing above the key psychological level of 189.00, thereby breaking

Irina Yanina 17:55 2025-02-10 UTC+2

What to Watch on February 10th? Fundamental Events Breakdown for Beginners

There are no major macroeconomic events scheduled for Monday. As a result, low volatility and a "boring Monday" are likely—something we haven't seen on the market for quite some time

Paolo Greco 07:32 2025-02-10 UTC+2

USD/JPY. Analysis and Forecast

The Japanese yen continues to experience modest intraday losses against the U.S. dollar, following cautious comments from the International Monetary Fund (IMF). However, the decline remains limited, as expectations grow

Irina Yanina 14:07 2025-02-07 UTC+2

XAU/USD. Analysis and Forecast

Gold continues to post modest gains, hovering near its all-time high reached earlier this week. Concerns over escalating trade tensions between the U.S. and China, along with potential economic repercussions

Irina Yanina 12:21 2025-02-07 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.