GBPUSD Breaks Below 1.30 As UK Inflation Falls Blow 2%

GBPUSD has been approaching 1.30 but this major level has held as support and yesterday we saw a bounce after the mixed UK jobs report. After gaining around 8 cents in August and September, the GBP/USD pair is showing signs of shifting from bullish to bearish as it dropped 4 cents in October, following a quick reversal above 1.34.

Sellers, however, have been consistently meeting strong support around the 1.30 level for the third week in a row. The 200-day SMA on the weekly chart, which has served as a support point for GBP/USD , is a key level that sellers will need to break through to confirm a bearish reversal. Yesterday, the pair surged by 70 pips to rise above 1.31 after the UK employment survey showed a higher unemployment rate for September, along with better-than-expected job data for August. However, these gains proved to be short-lived, as negative risk sentiment pushed the price back toward 1.30 during the US session.

GBP/USD Chart Daily – The 50 SMA Has Turned Into Resistance

So, GBP traders were looking at today’s CPIP report for further direction. In terms of inflation, the September services CPI is expected to decrease to 5.2% year-over-year from 5.6%, while the headline CPI is projected to decline to 1.9% year-over-year from 2.2% in August. Earlier this month, Bank of England Governor Andrew Bailey mentioned that if inflationary pressures keep easing, the central bank could potentially adopt a “more aggressive” approach to rate cuts. Currently, the markets are pricing in a 50% chance of a 25 basis point rate cut from the BoE in both November and December.

UK CPI Inflation Report for September

• UK September CPI: Rose by 1.7% year-over-year, below the expected 1.9% increase and down from August’s 2.2%.
• Core CPI: Increased by 3.2% year-over-year, slightly under the 3.4% forecast and lower than the prior month’s 3.6%.
• Inflation Trends: Both headline and core inflation rates slowed, indicating a potential easing of price pressures within the UK economy.
• Market Impact: The softer inflation figures could influence the Bank of England’s monetary policy decisions, as they provide some room for consideration on interest rate cuts.
• Economic Context: Lower-than-expected CPI figures align with recent data showing moderating economic activity in the UK.

Headline annual inflation in the UK has dropped below 2% for the first time since April 2021, leading to a decline in the GBP/USD exchange rate by 1 cent, from 1.3080 to a low of 1.2980, breaking below the key 1.30 level. The details show a drop in services inflation from 5.9% to 5.6%, while core services inflation experienced a steeper decline from 5.6% to 4.9%. This is a positive signal for the Bank of England as it reflects easing price pressures.

Following the data release, traders were pricing in nearly an 80% chance of a 25 basis point rate cut for the next month. This suggests that the market may open with a surge in rate cut expectations, nearly confirming the likelihood of a cut. However, it’s expected that any losses in sterling won’t be significantly high.

GBP/USD Live Chart