Market Overview: Pound Gains Momentum on Inflation Data
The British pound rallied on Wednesday after data revealed UK consumer inflation accelerated more than forecast in October. This reinforced expectations that the Bank of England will adopt a measured approach to rate cuts in the coming months.
The pound rose 0.23% to $1.2711 against the U.S. dollar after trading around $1.2688 before the data release. Against the euro, sterling climbed 0.26%, trading at 88.385 pence.
Inflation Data Highlights
Official figures showed UK inflation rose to 2.3% year-over-year in October, surpassing the 2.2% consensus estimate and up from 1.7% in September. Core inflation—which excludes volatile items like food and energy—also outperformed, increasing 3.3% y/y, compared to the expected 3.1%.
On a monthly basis:
- Consumer prices rose 0.6%, slightly above the forecast of 0.5%.
- Core consumer prices increased 0.4%, topping the estimate of 0.3%.
A key driver of the core inflation surge was services inflation, which edged up to 5.0% from 4.9% in September, highlighting ongoing price pressures in the sector.
Market Implications
The stronger-than-expected inflation print supports the Bank of England’s cautious approach. Governor Andrew Bailey emphasized the need for a “gradual approach” to monetary easing in his remarks to parliament earlier this week. This has reinforced market sentiment that the BoE will hold rates steady at its next meeting.
GBP/USD Outlook
The pound’s strength against the dollar was further aided by a pullback in the U.S. dollar index (DXY), which fell to 106.07 on Wednesday before recovering slightly.
Other Market Highlights
- USD/JPY: The dollar added 0.39% to trade at 154.84 yen, driven by rising U.S. Treasury yields.
- EUR/USD: The euro slipped 0.12% to $1.0585, recovering from a low of $1.0524 on Tuesday.
- Bitcoin: The cryptocurrency edged up 0.4% to $92,593, maintaining its recent bullish momentum following news of a potential acquisition in the crypto sector by Trump’s social media company.
The Road Ahead
The inflation report reinforces the BoE’s gradual easing approach, with the focus now shifting to further economic data, including GDP figures and labor market updates. Traders will continue monitoring monetary policy developments, particularly in light of ongoing global uncertainties.
For GBP/USD, key support lies around $1.2680, while resistance is seen at $1.2750, as markets digest this latest inflation surprise.
