Pound price surges to $1.33 as UK inflation drops to 2.6% and markets raise BoE rate cut expectations
The British Pound surged to $1.327 after UK inflation slowed more than expected
The British pound climbed to $1.327 on Wednesday, its highest level in six months, marking its seventh consecutive daily gain and the longest winning streak since July 2023. The surge followed softer-than-expected UK inflation data, which fueled market bets that the Bank of England (BoE) may begin cutting rates as early as May.
The Office for National Statistics reported headline CPI rose 2.6% year-on-year in March, below the 2.7% consensus and down from February's 2.8%. Services inflation, closely watched by BoE officials, eased to 4.7% from 5.0%. Core CPI matched expectations at 3.4% but edged down from 3.5% previously. Traders responded by pricing in 86 basis points of cuts for 2025, with over a 50% chance of a fourth cut priced in by December.
Despite the dovish shift, sterling remained buoyed by ongoing U.S. dollar weakness. The U.S. Dollar Index dipped toward 99.50 as investors continued to question the effectiveness and stability of President Trump's shifting tariff strategies. With reciprocal tariffs on Chinese goods remaining intact and new auto tariffs delayed, investor sentiment stayed cautious amid fears of recession risks in the world's largest economy.
GBP/USD price dynamics (August 2024 - April 2025) Source: TradingView.
Trade dynamics, labor market add pressure to BoE
Additional downward pressure on UK rates is emerging from a weakening domestic labor market. Employment declined in March, and new burdens on employers from higher National Insurance contributions are expected to weigh further. In the Autumn Budget, the employer NI rate was lifted from 13.8% to 15%, adding cost pressures that may curb hiring.
While BoE easing expectations have grown, upcoming data remain crucial. All eyes are now on the UK CPI release next month and further signals from the U.S.-China trade front. The Pound remains technically supported above 1.3200, with the next resistance at 1.3430—a three-year high. A sustained break beyond that could signal a medium-term shift in GBP/USD structure.
In earlier analysis, we noted the Pound's momentum was fueled by recovering labor market conditions and political optimism around trade deals. While the CPI data softened that narrative, broad USD weakness and Brexit-related trade resilience continue to underpin the bullish trend.
