Sterling Holds Firm as Inflation Surprise Fuels BoE Rate Hike Bets

Key Moments

GBP Supported Near Monthly High

The British Pound (GBP) is trading with a firm tone against the US Dollar (USD) on Thursday, with GBP/USD hovering near its monthly high around 1.3410 during European hours. The pair is drawing support from stronger-than-anticipated United Kingdom (UK) Consumer Price Index (CPI) data for September, which has bolstered expectations of a more hawkish stance from the Bank of England (BoE).

Inflation Surprise Reinforces BoE Tightening Outlook

Analysts at Nomura emphasize that the latest UK inflation release showed renewed upward pressure, with “both headline and services inflation” in the September report coming in “above consensus expectations.” They note that the BoE’s core gauge of underlying price pressures remains stubborn, stressing that “the BoE’s core measure service prices momentum has been sticky over the past few months.”

Nomura also highlights upstream pricing pressures, stating that “upstream prices also surprised on the upside.” While they observe that wholesale goods price gains were “dominated by a rise in energy costs,” they add that “core prices rose at a more modest pace.” At the same time, they caution that “upstream service prices are signalling a further increase in consumer prices,” underscoring the risk of renewed pass-through to households.

In light of these dynamics, Nomura concludes that “a combination of sticky inflation, a resilient labour market, strong economic growth and persistently elevated energy prices has led us to change our view on the BoE.” The firm now anticipates further policy tightening, noting: “We now see rate hikes in November and February, which is still a more dovish outcome than markets are pricing.”

Looking ahead, investors will turn their attention to the UK Retail Sales figures for September and the preliminary UK-United States (US) S&P Global PMI data for October, both due on Friday.

GBP/USD Technical Picture

On the daily chart, GBP/USD is trading at 1.3404. The pair has reestablished a near-term bullish bias, with price action holding above the 20-day Exponential Moving Average (EMA) at 1.3313 and consolidating between the 38.2% and 50.0% Fibonacci retracement levels of the latest downswing. The 50.0% retracement is positioned just above at 1.3409.

The Relative Strength Index (RSI) stands at 58.6 and is edging further into positive territory, suggesting that upside momentum is improving as the pair challenges this key Fibonacci barrier.

On the upside, initial resistance is aligned with the 50.0% Fibonacci retracement at 1.3409, followed by the 61.8% retracement near 1.3472 and the 78.6% level around 1.3562. Beyond these, the recent swing high at 1.3677 forms a more distant technical hurdle. On the downside, first support is located at the 38.2% retracement at 1.3345, ahead of the 23.6% level around 1.3267. A more pronounced decline would bring the structural floor near 1.3140 into view.

UK CPI: Latest Release and Trading Implications

The United Kingdom (UK) Consumer Price Index (CPI), published monthly by the Office for National Statistics, measures consumer price inflation – the rate at which the prices of goods and services purchased by households rise or fall – in line with international standards. It is the inflation gauge used for the government’s official target. The year-on-year (YoY) figure compares prices in the reference month with the same month a year earlier. In general, a high reading is viewed as supportive for the Pound Sterling (GBP), whereas a low reading is considered negative.

The Bank of England is mandated to keep inflation, as measured by the headline CPI, at around 2%, which gives significant weight to each monthly release. A rise in inflation suggests a faster or earlier increase in interest rates or a scaling back of bond purchases by the BoE, effectively tightening the supply of Pounds. Conversely, a slower pace of price growth points toward looser monetary policy. A result that exceeds expectations is typically GBP bullish.