Cooling UK Inflation Reduces Rate Hike Expectations, Pressuring Sterling in the Short Term

Summary:

UK inflation slowed more than expected in April, while weaker employment data further reduced market expectations for additional Bank of England tightening, putting short-term pressure on the pound.

BUY GBPUSD

EXP

TRADING

1.34078

Entry Price

1.36050

1.30900

1.34040 -0.00294 -0.22%

0.0

Pips

Flat

1.30900

Exit Price

1.34078

Entry Price

1.36050

Fundamentals

As UK inflation cooled faster than expected, market expectations for further Bank of England tightening eased sharply, driving UK government bond prices higher. The two-year gilt yield fell 8 basis points to 4.43%, while GBP/USD briefly slipped 0.1% to 1.3376 before recovering part of its losses.

Data released on Wednesday showed that the UK’s April CPI annual rate slowed to 2.8% from 3.3% in March, below the market forecast of 3.0%. At the same time, weak employment data released earlier this week further undermined expectations for near-term BOE rate hikes.

According to data from the London Stock Exchange Group (LSEG), investors now see only a 19% probability of a BOE rate hike in June, down sharply from 42% before the release of the latest employment and inflation figures. Swap market pricing also indicates that expectations for a June hike have fallen below 20%, compared with nearly 50% last week.

However, despite softer inflation data, UK inflation risks have not fully disappeared. Ongoing Middle East tensions and domestic political uncertainty continue to keep gilt yields near multi-year highs. In particular, the inflationary impact of rising energy prices has not yet been fully priced into financial markets.

Overall, the latest CPI report appears to have reduced the urgency for further BOE tightening rather than fundamentally altering the policy outlook. Markets are still far from convinced that inflation has been fully brought under control. With elevated oil prices continuing to pose upside risks, the BOE may still deliver additional rate hikes later this year, although the pace is likely to be more gradual than previously expected.

Cooling UK Inflation Reduces Rate Hike Expectations, Pressuring Sterling in the Short Term_1

Technical Analysis

GBP/USD remains neutral intraday and is expected to consolidate below 1.3450 in the near term. As long as the key support at 1.3300 holds, the pair is likely to maintain its rebound structure. However, a sustained break below major moving average support would weaken the current bullish outlook significantly.

Trading Recommendation

Direction: Buy

Entry Price: 1.3300

Target Price: 1.3605

Stop Loss: 1.3090

Valid Until: 2026-06-19 23:55

Support Levels: 1.3252, 1.3212, 1.3161

Resistance Levels: 1.3379, 1.3449, 1.3599

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