The Pound Sterling (GBP) is experiencing a significant sell-off following the release of a disappointing Consumer Price Index (CPI) report for September by the United Kingdom’s Office for National Statistics (ONS). The report revealed that annual headline inflation fell to 1.7%, softer than the expected deceleration to 1.9% from 2.2% in August, while month-on-month inflation remained flat.
Core CPI inflation, which excludes volatile items like food, energy, oil, and tobacco, also declined unexpectedly, dropping to 3.2% from prior estimates of 3.4% and the previous reading of 3.6%. Additionally, services inflation—an important metric for Bank of England (BoE) officials—rose at a slower rate of 4.9%, down from 5.6% in August. This sharp decline in price pressures is likely to lead traders to increase their bets on interest rate cuts during the remaining two policy meetings this year.
Currently, financial markets are anticipating that the BoE will implement a 25-basis-point rate cut in either of the meetings scheduled for November or December.
Market analysts had predicted a slowdown in service inflation, influenced by the sluggish growth of the UK’s Average Earnings Excluding Bonuses—a key wage measure that affects consumer spending. This measure recorded a rise of 4.9% for the three months ending in August, slower than the previous figure of 5.1%.
In Wednesday’s London session, the Pound Sterling dropped significantly below the psychological support level of 1.3000 against the US Dollar (USD). Meanwhile, the US Dollar remains buoyant, trading near a two-month high, as traders have priced in moderate interest rate cuts from the Federal Reserve (Fed) for the rest of the year. The US Dollar Index (DXY) is maintaining gains near 103.30 following the Fed’s decision to kick off its easing cycle with a larger-than-expected 50-basis-point cut in September.
According to the CME FedWatch Tool, expectations suggest a 25-basis-point cut in both the November and December meetings. Traders have revised their outlook, removing expectations for another 50-basis-point cut in November after a series of positive US economic data for September, which indicated signs of resilience. Key US data, including Nonfarm Payrolls (NFP) and the ISM Services PMI, have shown robust growth, alleviating concerns of a potential economic slowdown. Additionally, inflation pressures rose unexpectedly in September, highlighting that the battle against inflation is ongoing.
Looking ahead, investors are keenly awaiting the release of the monthly US Retail Sales data for September, scheduled for publication on Thursday. This key measure of consumer spending is estimated to have increased by 0.3%.
Technical Analysis: The Pound Sterling has slid below the 1.3000 mark against the US Dollar during European trading hours. The GBP/USD pair weakened after breaking out of a four-day trading range between 1.3020 and 1.3100. The currency pair had already been under pressure after falling below an upward-sloping trendline established from the December 28, 2023, high of 1.2827 earlier this month.
The near-term trend appears vulnerable, as the 20-day and 50-day Exponential Moving Averages (EMAs) near 1.3135 and 1.3100, respectively, are sloping downward. A decline in the Relative Strength Index (RSI) below 40.00 indicates bearish momentum.
Looking down, the 200-day EMA near 1.2840 will serve as a significant support level for GBP bulls. On the upside, resistance is expected near the psychological barrier of 1.3100.
Related Topics:
