In the European trading session on Wednesday, GBP/USD underwent a moderate bearish pressure, leading to its decline below 1.2500. A marked softening in the annual CPI inflation from 6.7% in September to 4.6% in October resulted in Pound Sterling losing appeal.
GBP/USD Daily Chart
GBP/USD’s Recovery and Employment Data Influence
A three-day recovery was noted for GBP/USD in the European session on Tuesday, backed by the mixed data from the UK employment sector. While the ILO Unemployment Rate remained steady at 4.2% in the quarter ending September, there was an increase in jobless benefit claims by 17.8K in September, compared to the previous rise of 20.4K. Average earnings, excluding bonus, saw a rise of 7.7% YoY in September, matching market expectations.
Market Cautiousness and Future Predictions
GBP/USD’s further rise seems limited as Pound Sterling traders exhibit caution, holding back from fresh betting on the pair. The impending US Consumer Price Index (CPI) data and Wednesday’s UK inflation data could significantly alter the Bank of England’s interest rate outlook, leading to increased volatility around the Pound Sterling.
UK Inflation Figures Overview
The UK’s CPI inflation experienced a sharp fall to 4.6% in October, contrary to the expected 4.8%. Monthly British inflation also saw a decrease to 0% in October against the estimated 0.1%. GBP/USD continues to stay below 1.2500 due to these inflation figures.
Here is a summary of the inflation rates for October 2023:
| Indicator | Annual Rate October 2023 | Annual Rate September 2023 | Monthly Rate October 2023 | Monthly Rate October 2022 |
|---|---|---|---|---|
| CPIH | 4.7% | 6.3% | 0.1% | 1.6% |
| CPI | 4.6% | 6.7% | 0.0% | 2.0% |
| Core CPIH | 5.6% | 5.9% | N/A | N/A |
| Core CPI | 5.7% | 6.1% | N/A | N/A |
The largest downward contribution to the change in both CPIH and CPI annual rates came from housing and household services, with the annual rate for CPI being the lowest since records began in January 1950. The second-largest downward contribution came from food and non-alcoholic beverages, where the annual rate was the lowest since June 2022.
For Core CPIH (excluding energy, food, alcohol, and tobacco), the annual rate fell from 5.9% in September to 5.6% in October 2023. Similarly, Core CPI saw a decrease from 6.1% in September to 5.7% in October 2023.
Source: ONS
Impact of UK CPI Inflation Data on GBP/USD
With the release of the UK CPI data, GBP/USD faced a fresh wave of selling pressure, falling towards 1.2450. As it stands, the spot is down by 0.19% on the day, trading at 1.2473.
EUR/USD’s Status Amid Overbought Conditions
Despite surging above 1.0850, EUR/USD faces rejection below the 1.0900 mark during the early European trading hours on Wednesday. The weaker-than-expected US inflation data is causing some selling pressure on the US Dollar (USD), providing support to the EUR/USD pair.
EUR/USD’s Surge and US Inflation Data
The EUR/USD saw a significant surge of about 200 pips due to a Dollar selloff triggered by the release of US consumer inflation data. The pair recorded its largest daily gain in months and seems set to continue its upward trajectory.
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