Pound Sterling Dips as UK Inflation Slows Down

Pound Sterling is losing ground against major currencies after the UK’s Consumer Price Index (CPI) data for September showed inflation cooling more than expected. This unexpected slowdown has sparked intense selling of the Pound Sterling, especially against the US Dollar, as markets anticipate looser Bank of England (BoE) policies. Global factors, like a stronger US Dollar and optimism in US-China trade talks, are adding pressure. This post breaks down why the Pound Sterling is struggling, its economic impact, and what technical signals suggest next.

UK Inflation Data Fuels Rate Cut Expectations

Pound Sterling took a hit after the Office for National Statistics (ONS) reported core CPI, which excludes food, energy, alcohol, and tobacco, grew by only 3.5% annually in September. This was below the expected 3.7% and down from 3.6% previously. Headline inflation stayed at 3.8%, missing forecasts of 4.0%, with no monthly price growth after a 0.3% rise in August. Services inflation, watched closely by the BoE, held steady at 4.7%.

This softer data suggests easing price pressures, boosting bets on BoE rate cuts in 2025. Recent UK jobs data, showing higher unemployment and slower wage growth, further supports a dovish outlook. As a result, the Pound Sterling is struggling to hold value, especially against a robust US Dollar.

US Dollar Strength and Trade Talk Optimism

The Pound Sterling faces added pressure from a stronger US Dollar. The US Dollar Index (DXY), tracking the Greenback against six major currencies, is hovering near a high of 99.00. Optimism about US-China trade talks is driving this strength, with positive signals from US leadership about a potential fair deal. However, uncertainty lingers over a key US-China meeting planned for later this month.

Progress toward resolving the US government shutdown also bolsters the US Dollar, weighing on the Pound Sterling. Investors are eyeing Friday’s US CPI data, expected to show headline inflation rising to 3.1% from 2.9%. This could shape Federal Reserve policy expectations, further impacting the GBP/USD pair.

Technical Indicators Suggest Further Downside for GBP/USD

Technical View: GBP/USD Faces Bearish Signals

The Pound Sterling is trading near 1.3310 against the US Dollar, unable to break the 20-day Exponential Moving Average (EMA) at 1.3407. This signals ongoing bearish momentum. The 14-day Relative Strength Index (RSI) is near 40.00, and a drop below could trigger sharper declines.

Support lies at the August low of 1.3140, with resistance at the 1.3500 psychological level. Traders should watch these levels for clues on the Pound Sterling’s next move.

Conclusion

The Pound Sterling is under strain as cooler UK inflation data fuels expectations of BoE rate cuts. A stronger US Dollar, driven by US-China trade optimism and potential US government progress, adds to the pressure. Technical signals point to further downside risks for GBP/USD. As markets await US inflation data, the Pound Sterling’s path hinges on both UK and global economic shifts. Stay tuned for updates.

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