The Pound Sterling (GBP) strengthened sharply on Wednesday after UK inflation data for July topped expectations. According to the Office for National Statistics (ONS), headline CPI rose 3.8% year-on-year, beating forecasts of 3.7% and accelerating from June’s 3.6%.
Core CPI, excluding volatile categories, also came in at 3.8% YoY, up from 3.7%. On a monthly basis, CPI rose 0.1%, defying projections of a decline.
BoE Policy Implications: Sticky Inflation a Concern
The stronger inflation data will reinforce the Bank of England’s cautious approach. In its August policy meeting, the BoE cut rates by 25 bps to 4.00%, but with a narrow majority. Governor Andrew Bailey recently warned of “de-anchoring inflation expectations” as food and energy prices surge.
Services inflation, a key metric for policymakers, spiked to 5.0% YoY, up from 4.7%, underscoring persistent domestic cost pressures.
A Reuters poll (Aug 13–19) showed markets expect only one more BoE rate cut this year, reflecting inflation stickiness and cautious central bank guidance.
Pound Market Reaction
The GBPUSD pair rebounded near 1.3500 following the CPI release, supported by stronger demand for Sterling. Meanwhile, the US Dollar Index (DXY) trades flat after hitting a weekly high near 98.00.
Markets remain cautious as attention shifts to Fed Chair Jerome Powell’s speech at Jackson Hole on Friday. Powell is expected to emphasize restrictive policy guidance amid uncertainty over the inflationary impact of Trump’s tariff measures.
US Inflation and Fed Outlook
The latest US CPI report for July suggested tariffs have had a limited effect on consumer prices so far. However, the PPI report showed businesses passing tariff costs to consumers, raising inflationary risks.
According to the CME FedWatch Tool, traders now assign an 85% probability of a 25 bps Fed rate cut in September, bringing the target range to 4.00%-4.25%.
Global Geopolitical Focus
Beyond macro data, geopolitical headlines are drawing investor attention. Reports suggest a trilateral summit involving President Trump, President Putin, and President Zelenskyy will be held in Budapest to discuss a potential Russia-Ukraine truce. Any breakthrough could ease safe-haven demand for the Dollar and impact GBPUSD flows.
Technical Outlook: GBPUSD Levels to Watch
Immediate resistance: 1.3525 (recent swing high)
Key support: 1.3450 (psychological and intraday base)
Breakout zone: A sustained move above 1.3530 could open the way toward 1.3600, while failure to hold 1.3450 risks a slide to 1.3400.
Conclusion
The hotter-than-expected UK inflation data has given the Pound Sterling a decisive boost, reinforcing expectations that the Bank of England will maintain a cautious stance on future rate adjustments despite its recent cut. While GBPUSD has regained momentum near 1.3500, the pair’s next direction will hinge on upcoming UK-US PMI data and Jerome Powell’s Jackson Hole speech, both of which could reshape rate expectations on either side of the Atlantic. For now, the balance of risks suggests the Pound may retain a supportive bias, though global geopolitical developments particularly US trade policy and Ukraine peace talks remain potential wildcards for Sterling traders.
