3.7% US inflation sends the Pound to an 11-month low
- GBP/USD dips under 1.3150, an 11-month low, then climbs back near 1.3200.
- US prices rise 3.7% on the year, and Treasury yields jump before reversing.
- UK August GDP is forecast to contract, and BoE Governor Bailey speaks Friday.
Hotter US inflation figures knocked GBP/USD to its lowest since late November 2025, and the pair is back near 1.3200, the floor of its range since late September. It dropped from just above 1.3250 on the release to just under 1.3150 at the low, and has recovered about two-fifths of that since.
US consumer prices were up 3.7% on the year in September against a 3.6% forecast, and the 10-year Treasury yield jumped from about 5.19% to about 5.33% on the release. The yield has since come back to about 5.20%, but the Pound has lost more against the Dollar than any other major currency on Wednesday.
Bank of England (BoE) Chief Economist Pill voted with external members Greene and Mann in September to raise the UK's Bank Rate from 3.75%. On Wednesday he said he's a bit sceptical of the four hikes markets price over the next year, which leaves traders expecting more from the BoE than one of its keenest advocates of a hike does. The UK side of the rate gap GBP/USD follows was being talked down before the US release pushed the other side up.
On the calendar
The UK's Gross Domestic Product (GDP) figure for August, due on Thursday, is forecast to show a 0.1% contraction after 0.4% growth in July, with factory output forecast down 0.1% after a 0.9% rise. Chief Economist Pill speaks again on Thursday and BoE Governor Bailey on Friday, ahead of the November 5 decision. A shrinking economy would make the four hikes in market prices harder to defend.
US retail sales, due on Thursday with producer prices and weekly jobless claims, are forecast to rise 0.3% in September after a 1.2% jump, and Fed Chair Warsh is due to speak on Friday. Traders already put a December Fed hike near 95%, so the US figures bear mostly on whether it arrives on October 28 instead.
On the charts
Wednesday's low went just under the late-June low, where the climb to the August 21 high just under 1.3700 began, so GBP/USD has given back that whole rally. The pair has traded beneath both its 50-day Exponential Moving Average (EMA), now near 1.3350, and its 200-day EMA, short of 1.3400, since September 17, and both averages are falling.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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