-
The Pound Sterling pulls back against major currencies after UK Chancellor Rachel Reeves voiced disappointment over hotter-than-expected CPI data.
-
UK Services CPI rose sharply to 5.4% in April, up from 4.7% in March.
-
The US Dollar remains under pressure following Moody’s downgrade of the US credit outlook.
The Pound Sterling (GBP) retreated against its major peers on Wednesday after briefly touching a new three-year high near 1.3470 against the US Dollar (USD). The currency gave up early gains following comments from UK Chancellor of the Exchequer Rachel Reeves, who expressed disappointment over hotter-than-expected April inflation data. “I am disappointed with the inflation figures,” Reeves stated.
According to the Consumer Price Index (CPI), UK headline inflation surged to 3.5% year-on-year in April, exceeding both the 3.3% forecast and March’s 2.6% reading—marking the highest level since November 2023. Core CPI, which excludes food, energy, alcohol, and tobacco, rose by 3.8%, above the anticipated 3.6% and up from 3.4% in March. On a monthly basis, headline CPI climbed by 1.2%, outpacing the 1.1% estimate and March’s 0.3% increase.
The UK Office for National Statistics (ONS) attributed the sharp rise in inflation to price increases in housing and household services, transport, and recreation and culture. This unexpected surge in inflationary pressures reduces the likelihood of the Bank of England (BoE) maintaining its previously cautious stance on monetary policy easing.
Particularly concerning for the BoE is services inflation—closely monitored by policymakers—which jumped to 5.4% in April from 4.7% in March. The persistent inflation is expected to push the central bank to abandon its “gradual and cautious” approach to policy loosening in its June meeting, prompting traders to scale back bets on near-term rate cuts.
Meanwhile, BoE Chief Economist Huw Pill, speaking on Tuesday, emphasized the need for caution in reducing interest rates, citing the lasting inflationary effects of structural changes in pricing and wage behavior following years of inflation well above target, according to Bloomberg.
Daily Market Digest: Pound Sterling Gains Ground Against a Weakening US Dollar
- The Pound Sterling (GBP) remains resilient against the US Dollar (USD) on Wednesday, despite pulling back from an earlier surge to a fresh three-year high near 1.3470. At the time of writing, the GBP/USD pair is still up by 0.15%, trading comfortably above the 1.3400 mark. The pair’s strength is largely driven by broad-based US Dollar weakness, fueled by a combination of political and economic concerns in the United States.
- The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, has tumbled to around 99.45, its lowest level in two weeks.
-
The US Dollar continues to face pressure following Moody’s one-notch downgrade of the US long-term issuer rating from Aaa to Aa1, citing growing fiscal imbalances and rising interest obligations tied to the country’s massive $36 trillion debt load.
-
Market sentiment deteriorated further amid fears that the proposed tax bill by President Donald Trump could add $3–$5 trillion to the national debt, eroding investor confidence in US fiscal sustainability.
-
Republican lawmakers, including Representative Mike Lawler, voiced opposition to the bill, particularly its provision to raise limits on state and local tax deductions. Democrats, meanwhile, criticized the bill for potentially undermining social programs and disproportionately benefiting the wealthy, especially with tightening Medicaid regulations included in the proposal.
-
Fed officials have warned that the economic policies under consideration could trigger stagflation—a mix of stagnant growth and rising inflation. As a result, the Fed is signaling caution and may opt to maintain current interest rates to mitigate inflation risks stemming from tariffs and structural changes.
Technical Analysis: GBP/USD Holds Firm Above 1.3400
Despite a slight pullback during the European session, the GBP/USD pair continues to trade above the key 1.3400 support level, maintaining its bullish bias. Earlier in the session, the pair rallied toward 1.3470, marking its highest level since early 2022.
All major Exponential Moving Averages (EMAs) from short to long term are trending higher, indicating strong underlying momentum.
The 14-day Relative Strength Index (RSI) has moved above the 60.00 level, signaling renewed bullish momentum. A sustained RSI above this level could lead to further upside.
The next significant resistance lies at the January 13, 2022 high of 1.3750.
On the downside, the 20-day EMA around 1.3300 is expected to offer strong support if the pair corrects lower.
