Pound Sterling Under Pressure: US CPI Data Triggers Dollar Rally

The GBP/USD fell below 1.2400 after stronger-than-expected US inflation data was released. The pair reached a low of 1.2374 as the US Consumer Price Index (CPI) exceeded 3% year-over-year for the first time since June 2024, signaling persistent price pressures. This has led investors to push back expectations for a Federal Reserve rate cut to September 2025, strengthening the US dollar.

The CPI rose 0.5% month-over-month, exceeding the 0.4% increase in December, and the core CPI (excluding volatile items) rose 3.3% year-over-year and 0.4% month-over-month, also surpassing forecasts. Consequently, market expectations for a near-term Fed rate cut have diminished significantly, with traders now anticipating only 20 basis points of easing by September, down from 45 bps last week (source: Prime Market Terminal).

Meanwhile, the UK’s National Institute of Economic and Social Research (NIESR) predicts limited scope for further Bank of England rate cuts, forecasting only two cuts in 2025 and 2026.

From a technical perspective, the GBP/USD appears to be consolidating within a range of 1.2330 to 1.2450, with a bearish bias indicated by the Relative Strength Index (RSI). A daily close below 1.2400 could lead to further declines towards 1.2332, 1.2248, and potentially 1.2200. Conversely, a move above 1.2400 and the 50-day Simple Moving Average (SMA) at 1.2475 could target 1.2500.