Pound Sterling holds gains above 1.2700 ahead of UK inflation


  • The Pound Sterling trades strongly above 1.2700 against the US Dollar ahead of UK inflation data.
  • UK inflation is forecasted to have declined sharply in April.
  • Fed officials continue to support higher interest rates for a longer period.

The Pound Sterling (GBP) remains firm, trading slightly above 1.2700 in Tuesday’s New York session. The next move in the GBP/USD pair will likely be guided by the United Kingdom Consumer Price Index (CPI) data for April and the Federal Open Market Committee (FOMC) minutes for the May meeting, which will be published on Wednesday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges down to 104.50 as investors look for fresh cues about when the Federal Reserve (Fed) will start reducing interest rates. Investors await the FOMC minutes to get a deep understanding of policymakers’ views on the interest-rate outlook.

The impact of the FOMC minutes on markets could be light as the inflation outlook in the US has changed significantly since the last Fed meeting. Inflation declined as expected in April, signalling that the progress in the disinflation process has restarted after failing to do so during the January-March period. As the last Fed meeting was held before the release of the latest inflation print, the communication from Fed officials over interest rates is expected to be significantly hawkish.

Despite April’s decline in US inflation, Fed officials seem to still lack confidence that price pressures will sustainably return to the desired rate of 2%. On Monday, Fed Vice Chair for Supervision Michael Barr said that "Q1 inflation was disappointing, did not provide the confidence needed to ease monetary policy". Barr vowed for allowing more time for a tight policy stance to do its job.

Daily digest market movers: Pound Sterling rises while US Dollar turns subdued

  • The Pound Sterling edges higher but trades inside Monday’s trading range and holds the crucial support of 1.2700 against the US Dollar. The Pound Sterling performs strongly against all major currencies ahead of the UK CPI data for April.
  • Economists expect that the UK Office for National Statistics (ONS) will report a sharp decline in headline inflation to 2.1% from the prior reading of 3.2%. The core CPI, which strips off the more volatile items, is estimated to have decelerated to 3.6% from 4.2% in March. The monthly headline inflation is expected to have grown at a slower pace of 0.2% after a sharp increase of 0.6% in March.
  • The expected decline in UK inflation will increase investors’ confidence that price pressures are on course to return to the desired rate of 2%. This will boost expectations of early rate cuts by the Bank of England (BoE). Currently, investors have divided between the June or August meeting from when the BoE could start returning to policy normalization.
  • The expectations for the BoE to begin lowering interest rates in summer have strengthened, driven by a dovish communication from BoE Deputy Governor Ben Broadbent on the interest rate outlook. On Monday, Broadbent said: "If things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it's possible Bank Rate could be cut sometime over the summer," Reuters reported.

Technical Analysis: Pound Sterling stabilizes comfortably above 1.2700

The Pound Sterling extends its winning spell for the third trading session on Tuesday but prices hover inside Monday’s trading session, suggesting that investors await fresh triggers for further action. The GBP/USD pair advances to an almost two-month high near 1.2700. The Cable is expected to remain in the bullish trajectory as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend. The Cable has retraced 61.8% of losses from March’s high around 1.2900.

The 14-period Relative Strength Index (RSI) has shifted into the bullish range of 60.00-80.00, suggesting that the momentum has leaned toward the upside.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Read more.

Next release: Wed May 22, 2024 06:00

Frequency: Monthly

Consensus: 2.1%

Previous: 3.2%

Source: Office for National Statistics

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

 

Share: Feed news

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


Recommended content

Editors’ Picks

EUR/USD remains near 1.0400 post-US PCE

EUR/USD remains near 1.0400 post-US PCE

The US Dollar’s inconclusive price action allows some recovery in EUR/USD, keeping the pair around the 1.0400 region following the release of PCE inflation data for the month of January.

EUR/USD News
Gold slumps to fresh multi-week lows below $2,840

Gold slumps to fresh multi-week lows below $2,840

Gold stays under bearish pressure and trades at its lowest level in three weeks below $2,840. The uncertainty surrounding the Trump administration's trade policy and month-end flows seem to be weighing on XAU/USD, which remains on track to snap an eight-week winning streak. 

Gold News
GBP/USD clings to gains just above 1.2600 after PCE data

GBP/USD clings to gains just above 1.2600 after PCE data

GBP/USD remains positively oriented in the 1.2600 neighbourhood as the Greenback is navigating a vacillating range following the PCE inflation release.

GBP/USD News
The week ahead – US Payrolls, ECB rate meeting, ITV results – W/c 3rd March

The week ahead – US Payrolls, ECB rate meeting, ITV results – W/c 3rd March

Having seen the Federal Reserve keep rates on hold last month the US labour market continues to show remarkable resilience, despite seeing a slowdown in hiring in January, after a blow out December number. 

Read more
Weekly focus – Tariff fears are back on the agenda

Weekly focus – Tariff fears are back on the agenda

While the timing of the EU measures remains still uncertain, Trump surprised markets on Thursday by signalling that the 25% tariffs on Canada and Mexico will be enacted when the one-month delay runs out next Tuesday. 

Read more
The Best brokers to trade EUR/USD

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.

Read More

Forex MAJORS

Cryptocurrencies

Signatures

Best Brokers of 2025