- UK inflation fell sharply from 2.2% to 1.7% in September.
- Services inflation, a key measure for the BoE, fell from 5.6% to 4.9%.
- The Fed’s Raphael Bostic said he expects another rate cut this year.
The GBP/USD forecast points to a sharp decline after UK inflation data missed forecasts. An unexpected drop in price pressures has increased bets for a BoE rate cut. Meanwhile, the dollar’s strength continued as Fed policymakers shifted to a cautious tone.
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Data on Wednesday showed UK inflation fell sharply from 2.2% to 1.7% in September. Meanwhile, analysts had expected it to rise by 1.9%. Softer figures put more pressure on the Bank of England to reduce borrowing costs. Moreover, services inflation, a key measure for the central bank, fell from 5.6% to 4.9%.
After the report, market participants estimated a 90% chance of two 25 basis point rate cuts this year. Consequently, sterling fell sharply against the dollar. Inflation is now below the central bank’s target. Therefore, there is a risk that it will continue to fall to unhealthy levels, forcing the BoE to quickly lower borrowing costs.
Meanwhile, Fed policymakers recently turned cautious after data showed a resilient economy and unexpectedly high inflation. Mary Daly noted that future rate cuts will depend on incoming data. Meanwhile, Raphael Bostic said he expects another rate cut this year.
Traders are now looking to the upcoming retail sales report for more clues. A bigger-than-expected jump in sales is likely to add to the Fed’s cautious tone. On the other hand, the soft numbers will increase bets for a November rate cut.
GBP/USD key events today
Market participants will continue to digest UK CPI news as there will be no more high-impact reports.
GBP/USD technical forecast: Bears break the 1.3000 level
On the technical side, GBP/USD fell below the 1.3051 support level, reinforcing the bearish bias. This move comes after a false bullish breakout above the 30-SMA. Initially, GBP/USD consolidated between the SMA and the 1.3051 support level.
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The price is now trading well below the SMA and the RSI is approaching the oversold region. It made a lower low, confirming the continuation of the previous downtrend. Given the solid bearish bias, the price could soon return to the 1.2950 level. It could pause here as the SMA catches up before making new lows.
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