Sterling hits 7-month high as UK inflation cools, rate bets rise
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The British pound extended its bullish momentum on Wednesday, rising for the seventh consecutive session and touching a fresh seven-month high at $1.3280 against the US dollar. The move follows the latest UK inflation report, which showed further moderation in consumer prices, fueling expectations that the Bank of England may initiate a rate-cutting cycle as early as May. Meanwhile, ongoing weakness in the US dollar, exacerbated by rising geopolitical tensions and policy uncertainty, is amplifying sterling’s relative strength.
UK headline inflation printed at 2.6% in March, a deceleration from February’s 2.8% and slightly below the 2.7% forecast. Core inflation, a key gauge closely watched by central banks, slipped to 3.4% from 3.5%, marking the second consecutive monthly decline. This data set reinforces the view that inflationary pressures in the UK economy are on a controlled trajectory, easing the policy dilemma faced by the Bank of England and bolstering the case for a potential cut to the current 4.5% base rate at the upcoming meeting scheduled for May 8.
However, the pound’s rally is not solely a function of domestic economic fundamentals. Dollar softness has provided an additional tailwind. US inflation dynamics remain subdued, and the policy instability stemming from President Trump’s shifting tariff strategy has diminished investor appetite for the greenback. The dollar index (DXY) continues to trade near multi-year lows, undermined further by market bets on multiple Fed rate cuts before year-end.
In the broader macro picture, the pound appears to be benefiting from a relative improvement in the UK’s inflation-risk outlook and greater clarity in its monetary policy path, especially when compared with the more volatile policy backdrop in the US. Markets have started to aggressively price in a 25-basis-point rate cut by the BOE, while implied volatility in GBPUSD remains contained, reflecting renewed confidence among FX traders.
Looking ahead, the GBPUSD pair will remain sensitive to inflation-related macro releases, central bank communications, and geopolitical developments — particularly those related to trade. A sustained break above the $1.33 psychological level could pave the way for a retest of the $1.34–1.35 zone, last visited in mid-2023. For now, however, sterling's trajectory is firmly upward, supported by fundamental alignment and macro tailwinds.
UK headline inflation printed at 2.6% in March, a deceleration from February’s 2.8% and slightly below the 2.7% forecast. Core inflation, a key gauge closely watched by central banks, slipped to 3.4% from 3.5%, marking the second consecutive monthly decline. This data set reinforces the view that inflationary pressures in the UK economy are on a controlled trajectory, easing the policy dilemma faced by the Bank of England and bolstering the case for a potential cut to the current 4.5% base rate at the upcoming meeting scheduled for May 8.
However, the pound’s rally is not solely a function of domestic economic fundamentals. Dollar softness has provided an additional tailwind. US inflation dynamics remain subdued, and the policy instability stemming from President Trump’s shifting tariff strategy has diminished investor appetite for the greenback. The dollar index (DXY) continues to trade near multi-year lows, undermined further by market bets on multiple Fed rate cuts before year-end.
In the broader macro picture, the pound appears to be benefiting from a relative improvement in the UK’s inflation-risk outlook and greater clarity in its monetary policy path, especially when compared with the more volatile policy backdrop in the US. Markets have started to aggressively price in a 25-basis-point rate cut by the BOE, while implied volatility in GBPUSD remains contained, reflecting renewed confidence among FX traders.
Looking ahead, the GBPUSD pair will remain sensitive to inflation-related macro releases, central bank communications, and geopolitical developments — particularly those related to trade. A sustained break above the $1.33 psychological level could pave the way for a retest of the $1.34–1.35 zone, last visited in mid-2023. For now, however, sterling's trajectory is firmly upward, supported by fundamental alignment and macro tailwinds.