UK CPI on Wednesday the key test for a Pound Sterling under pressure
- Wednesday's UK Consumer Price Index release is the dominant near-term risk event, with headline inflation forecast to ease to 3.0% from 3.4% and services CPI seen at 4.3%.
- A dovish 5-to-4 Bank of England hold in February and markets pricing roughly 50 basis points of cuts this year weigh on Pound Sterling as the US Dollar regains footing.
The Bank of England (BoE) held the Bank Rate at 3.75% at its February 5 meeting in a narrowly split 5-to-4 vote, with four Monetary Policy Committee (MPC) members voting for an immediate 25 basis point cut, a more dovish outcome than markets anticipated. Governor Andrew Bailey signalled that inflation is expected to return to the 2% target around June 2026, and that further easing is likely if data cooperate, though future decisions will be finely balanced. Markets are currently pricing approximately 50 basis points of BoE cuts in 2026, with around a 70% probability for the next reduction at the April 30 meeting. Wednesday's UK Consumer Price Index (CPI) print will be critical: consensus expects headline CPI to drop to 3.0% from 3.4% in December, core CPI to ease to 3.0% from 3.2%, and services inflation to tick down to 4.3% from 4.5%. A softer services reading in particular could reinforce the case for an April cut and add further pressure on Pound Sterling. Tuesday's UK jobs report, which showed unemployment holding at 5.1% alongside cooling wage growth, has already done some damage.
On the US Dollar side, the Federal Open Market Committee (FOMC) minutes from the January meeting are also due Wednesday and will be parsed for signals on the Fed's rate path following January's hold.
Break below near-term support as Stochastic turns lower from mid-range
On the daily chart, GBP/USD opened Tuesday at 1.36250, reached a high of 1.36250 and a low of 1.35390, and closed near 1.35590, down approximately 0.56%. The pair is trading above the rising 50-day Exponential Moving Average (EMA) at 1.35180 and the 200-day EMA at 1.33400, with both averages pointing higher and roughly 180 pips apart, preserving the broader bullish structure that developed from the January low of 1.32900. However, Tuesday's session saw price break and close below the 1.3595 to 1.3620 support zone that had held through multiple tests over the past two weeks, a bearish development on the short-term chart. The Stochastic Oscillator (14,5,5) shows %K at approximately 38.00 and %D at 44.00, with %K crossing below %D from mid-range and both lines declining, suggesting momentum is shifting to the downside without yet reaching oversold territory.
Tuesday's candle printed a relatively long-bodied bearish session with a short upper wick, pointing to sustained selling pressure rather than a brief spike below support. Immediate support sits at the 1.3526 to 1.3539 area, followed by the 50-day EMA at 1.35180; a daily close below the EMA would open the path toward the 1.3474 yearly open and the 1.3340 to 1.3372 zone defined by the 200-day EMA and the 61.8% retracement of the November 2025 rally. On the upside, the pair would need to reclaim and close above 1.3620 to re-establish the broken support as resistance and shift focus back toward the 1.3730 to 1.3871 zone; a softer-than-expected CPI print on Wednesday is the most likely near-term catalyst for that recovery, while an in-line or hot reading would likely extend the current pullback.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Artigos Recomendados
