GBP/USD struggles around 1.30 after UK, US inflation
Both the UK & US saw a strong rise in inflation but the central bank outlooks are showing signs of possible divergence keeping GBPUSD under pressure.
Share this:
UK inflation & the BoE
Today’s data confirmed that the squeeze on UK households has risen again. Inflation has surged to its highest level in 3 decades. It’s unsurprising to see fuel prices, which jumped 10% in the month, as the main driver of inflation as oil prices surged amid the fallout from the Russian war. But this certainly wasn’t the only driver, with price rises evident across many categories including furniture and hospitality as supply chain disruptions and rising wages also lift inflation.
The BoE expects inflation to rise to 8% in April but given the ahead of forecast print today, that could well be 8.5%. Inflation could then rise again in the autumn as the energy cap is lifted.
Hot inflation in the UK comes as the UK jobs market continues improving but economic growth shows signs of stalling putting the BoE between a rock and a hard place. Policymakers will need to decide whether to rein in inflation or support growth.
We expect the BoE to attempt to rise once more, maybe twice at a push. But fears that a hawkish BoE could tip the UK into recession are dragging on GBP.
US inflation & the Fed
Meanwhile, US CPI rose ahead of forecasts to 8.5% YoY in March, up from 7.9% in February. Interestingly core CPI was slightly short of forecasts at 6.5%, rather than the 6.6% forecast, which some, including Brainard, considered a sign that inflation could be peaking.
Even so the hot inflation boosted the market’s expectations of a 50-basis point rate hike. According to the CME Fed Funds, the market is now pricing in an 87% chance of a 50 bp rate hike in May, up from 81% pre-release yesterday.
The more hawkish expectations boosted the US dollar index, which rallied 0.4% yesterday, marking its 10th straight day of gains.
Whilst US inflation is high, the US jobs market strong and economic growth, whilst slowing comes from a much stronger base. The US bond yields inverted sounding alarm bells over a possible recession, but the markets seem less concerned.
GBP/USD
The expected divergence in the outlook for monetary policy is weighing on the pound against the USD.
GBP/USD has been trending lower since March 23, forming a series of lower highs and lower lows. The pair has broken below 1.30 the key psychological support and 1.2980 the 2022 low, opening the door to 1.29 round number.
On the flip side, the first point of resistance above 1.30 psychological level is 1.3050 and then 1.3080 the 50 sma.
How to trade with City Index
Follow these easy steps to start trading with City Index today:
- Open a City Index account, or log-in if you’re already a customer.
- Search for the market you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels
- Place the trade.
Latest market news
The complete CFD trading experience
Award-winning platforms, competitive spreads, low commissions and dedicated support.
We live and breathe the markets and are dedicated to helping traders realise their ambitions as we continue to set the industry bar.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
EUR/USD weekly outlook: Oil, inflation and NFP in focus
After coming under significant pressure in recent weeks, the EUR/USD came off its lows to finish the week on a positive note on Friday, albeit with only a mild rebound. That was not enough to prevent the exchange rate falling for the third consecutive week, as the US dollar and bond yields rallied across the board.
EUR/USD Q4 2026 Outlook: Euro at a Crossroads as Fed, ECB Tighten 9 25 2026
EUR/USD enters Q4 at a pivotal inflection point as competing Fed-ECB policy paths and persistent inflation risks collide with major technical support.
USD/JPY Q4 2026 Outlook: Hawkish Fed Pricing Clashes With Intervention Risk
The year-end tug-of-war is clear: hawkish Fed pricing supports USD/JPY, while intervention risk limits the upside.
StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.
StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.