GBPUSD: UK Inflation falls to 2.6% (April 17th)

Summary

• Current BoE Interest Rate: 5.25%
• Rate Cut Probability (May 9th Meeting): 85%
• GBPUSD: Under pressure after CPI miss
• UK Bond Yields: Falling, reinforcing dovish bets

Fundamental Factors Affecting the Pound

1. UK Inflation Falls Below Forecast
   • March CPI YoY: 2.6%, down from 2.8% and below the 2.7% expected.
   • Key drags: Recreation (-4.2%), data equipment (-5.1%), and motor fuel (-5.3%).
   • Core inflation eased slightly to 3.4%, supporting the case for easing.
   • Monthly CPI: Rose 0.3%, slightly below forecast (0.4%).
2. BoE Policy Outlook
   • With inflation nearing target, BoE is widely expected to cut rates in May.
   • This would mark the first cut of the cycle after holding at 5.25% since September 2023.
   • Policymakers may act pre-emptively, given falling inflation and global slowdown risks.
3. Upside Inflation Risks Still Exist
   • Energy & water bills are expected to add 0.8 percentage points to the April CPI.
   • ING projects inflation will rebound to 3.2% in April, possibly reaching 3.5% in Q3.
   • Services inflation remains sticky but still within BoE projections.
   • Tariff uncertainty (especially with the U.S. and EU) could exacerbate cost pressures.
4. Consumer Behavior & Growth Risks
   • High rates and economic uncertainty are prompting cautious consumer spending.
   • Weaker demand could dampen future inflation and slow growth.

Key Takeaway for Traders

• Short-term: Lower-than-expected CPI and high rate-cut expectations are bearish for GBP.
• Medium-term: Rising energy costs and sticky services inflation may limit BoE’s dovish path.
• Long-term: If inflation re-accelerates in Q2-Q3, BoE may pause after one or two cuts.
• FX Impact:
  • GBPUSD faces a downside toward 1.2400 if BoE cuts aggressively.
  • EURGBP could trend higher if the ECB holds rates longer.
  • Traders should watch April CPI (due in May) and tariff developments for fresh momentum.

GBPUSD – H1 Timeframe

Following the bearish break of structure and the break below the trendline support on the 1-hour timeframe chart, GBPUSD went slightly bullish following the decline in inflation figures. The bullish reaction may, however, turn out to be a retracement, as the bullish trend on GBPUSD is currently overextended. Additional confluences include the Fibonacci retracement levels and the drop-base-drop supply zone.

GBPUSD – M30 Timeframe

The primary criteria on the 30-minute timeframe chart of GBPUSD is the SBR (Sweep-Break-Retest) pattern, as seen above. The region between 76% and 88% of the Fibonacci retracement tool is the Area of Interest as we watch for confirmations of a bearish intent.

Analyst’s Expectations: 

Direction: Bearish

Target- 1.31768

Invalidation- 1.32948

CONCLUSION

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