The UK’s Office for National Statistics (ONS) is scheduled to release the Consumer Price Index (CPI) report for March at 06:00 GMT on Wednesday. With inflation remaining a central theme in the Bank of England’s (BoE) policy deliberations, the upcoming figures could be pivotal in shaping market expectations for interest rate cuts—and sparking significant movement in the Pound Sterling (GBP).
Expectations for March Inflation Data
Economists forecast the headline CPI to rise by 2.7% year-over-year (YoY) in March, a slight deceleration from February’s 2.8% increase. Despite the moderation, inflation is expected to stay well above the BoE’s 2.0% target. Core inflation—which strips out volatile components like energy, food, alcohol, and tobacco—is projected to remain steady at 3.5% YoY.
Service sector inflation, a key metric closely monitored by the BoE, is expected to decline marginally to 4.8%, from 5.0% in February. Monthly CPI growth is predicted to come in at 0.4%, mirroring the previous month’s pace.
Analysts at TD Securities are slightly more optimistic, projecting headline inflation at 2.6% and service inflation easing to 4.7%, which would pull core inflation down to 3.3%. “Though these numbers remain above the BoE’s comfort, the downward trajectory will be welcomed ahead of their May meeting,” they noted.
Impact on Monetary Policy and the Pound
If inflation data aligns with or undershoots expectations, it would reinforce market bets that the BoE will cut its key rate by 25 basis points to 4.25% at its May 8 policy meeting. Financial markets are already pricing in up to 100 basis points in cuts for 2025 amid ongoing concerns over the UK’s fragile economic outlook, exacerbated by global trade tensions.
At its March meeting, the BoE maintained rates at 4.5%, with an 8-1 vote in favor of holding. The bank cited increasing global trade policy uncertainty—highlighting recent US tariff actions and retaliatory measures abroad—as a rising risk to the UK’s economic performance.
However, any upside surprise in the inflation data could delay anticipated rate cuts, offering a potential lift to the GBP. A hotter-than-expected reading would likely shift sentiment, pushing GBP/USD toward the 1.3300 mark.
Technical Outlook for GBP/USD
GBP/USD is currently testing the 1.3200 level, trading well above major daily Simple Moving Averages (SMAs). Technical indicators suggest a bullish bias, with a Golden Cross—where the 50-day SMA is poised to rise above the 200-day SMA—on the horizon. The 14-day Relative Strength Index (RSI) remains above 50, reinforcing upward momentum.
According to FXStreet’s Dhwani Mehta, “The pair needs acceptance above the 1.3250 psychological barrier to extend the uptrend toward the 1.3300 threshold. The next topside target is aligned at the October 2024 high of 1.3390.”
On the downside, immediate support lies at the 21-day SMA of 1.2958. A break below that would expose the confluence zone around 1.2810, where the 50-day and 200-day SMAs intersect. Further weakness could open the path toward the 100-day SMA at 1.2652.
As markets brace for the inflation report, all eyes will be on how the data reshapes the BoE’s policy trajectory—and where it sends the pound next.
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