The British pound fell to 1.33! Four major signals indicate a possible turnaround in the exchange rate, putting the bulls' last line of defense to the test.
2025-10-22 17:59:57
During European trading hours on Wednesday (October 22nd), the British pound (GBP) fell to 1.3310 against the US dollar, dropping 60 pips, or 0.37%, to 1.3319. This marked the fourth consecutive day of decline for the currency pair. Following the release of UK inflation data, the pound saw a sharp decline in the short term, confirming that price pressures have reached a temporary peak.
UK inflation rose less than expected in September, putting downward pressure on the British pound. UK Consumer Price Index (CPI) data showed price pressures falling short of market expectations, leaving the British pound relatively weak among major currencies. UK core inflation unexpectedly fell to 3.5% in September, while overall inflation remained stable. Meanwhile, optimism generated by Sino-US trade negotiations continued to support the US dollar.
The Bank of England had previously predicted that the inflation rate would peak at around 4% in September and then gradually decline. It has now achieved its target ahead of schedule.
Last week, Bank of England chief economist Huw Pill called on other interest rate decision makers to be "more cautious" about future rate cuts. The core concern is that the inflation rate may remain stubbornly high. If the CPI moves downward beyond expectations, the inflation peak will appear earlier, which will increase the Bank of England's determination to further cut interest rates.
The September inflation rate is often used to determine increases to a number of benefits, including universal credit, tax credits and disability benefits. It is also a key component of the pension triple lock, which determines the rate of increase in pensions in April of the following year.
However, the pension increase must be determined based on three factors: the inflation rate in September, the average income growth rate from May to July, and 2.5%, with the maximum of the three being taken.
Given that income growth has been confirmed to have reached 4.8% and inflation data has not exceeded income growth, the inflation rate will not be used as the benchmark for pension increases this time.
It has been reported that the current Chancellor of the Exchequer is already working to fill the country's fiscal gap. Chancellor Reeves plans to impose new fees on users of limited liability partnerships and launch a £2 billion tax increase on lawyers, family doctors and accountants.
The reduction in government debt gives the government more room to maneuver.
In addition, the strengthening of the US dollar index further amplified the weakness of the British pound against the US dollar. As of press time, the US dollar index (DXY), which tracks the US dollar against six major currencies, was consolidating in a narrow range around Tuesday's high of 99.00, with relatively stable trading.
The market's optimistic expectations that China and the United States are close to reaching a trade deal pushed the dollar up slightly. The US president has previously expressed confidence that the two countries can reach a fair agreement.
U.S. Senate Minority Leader Chuck Schumer revealed on Tuesday that he and House Democratic Leader Hakeem Jeffries had communicated with Trump and planned to negotiate the restart of the government through talks.
Investors are focused on Friday's delayed U.S. Consumer Price Index (CPI) data for September, which will be key to shaping market expectations for the Federal Reserve's monetary policy path.
Economists predict that the year-on-year growth rate of the overall CPI in the United States will rise from the previous 2.9% to 3.1%, while the year-on-year growth rate of the core CPI will stabilize at 3.1%.
The UK CPI exceeded expectations and the US dollar strengthened, triggering a concentrated release of downward risks for the pound. The slowdown in inflation data gave the UK's fiscal and interest rate policies a chance to breathe.
The subsequent coordination of interest rate cuts and tax increases will help the government better use its economic tools to regulate the market. The pound is expected to move from a short-term bearish to a long-term bullish trend. As the interest rate cut path is determined and the government expects the shutdown to end, the US dollar index is expected to help US dollar bulls realize profits and exit the market, which may drive a turnaround in the pound.
The daily chart of GBP/USD shows that the pound remains in a bearish pattern overall, with the 5-, 10-, 20-, and 30-day moving averages aligned in a bearish pattern. The broader pattern also suggests a potential double-top formation, suggesting market bets on a possible UK interest rate cut. Support is around 1.3300, followed by 1.3248, and resistance is around 1.3450.
(GBP/USD daily chart, source: Yihuitong)
At 17:57 Beijing time, the British pound was trading at 1.3322/23 against the US dollar.
UK inflation rose less than expected in September, putting downward pressure on the British pound. UK Consumer Price Index (CPI) data showed price pressures falling short of market expectations, leaving the British pound relatively weak among major currencies. UK core inflation unexpectedly fell to 3.5% in September, while overall inflation remained stable. Meanwhile, optimism generated by Sino-US trade negotiations continued to support the US dollar.
Inflation exceeds target and Bank of England may take action
The Bank of England had previously predicted that the inflation rate would peak at around 4% in September and then gradually decline. It has now achieved its target ahead of schedule.
Last week, Bank of England chief economist Huw Pill called on other interest rate decision makers to be "more cautious" about future rate cuts. The core concern is that the inflation rate may remain stubbornly high. If the CPI moves downward beyond expectations, the inflation peak will appear earlier, which will increase the Bank of England's determination to further cut interest rates.
CPI pause may reduce UK government costs
The September inflation rate is often used to determine increases to a number of benefits, including universal credit, tax credits and disability benefits. It is also a key component of the pension triple lock, which determines the rate of increase in pensions in April of the following year.
However, the pension increase must be determined based on three factors: the inflation rate in September, the average income growth rate from May to July, and 2.5%, with the maximum of the three being taken.
Given that income growth has been confirmed to have reached 4.8% and inflation data has not exceeded income growth, the inflation rate will not be used as the benchmark for pension increases this time.
It has been reported that the current Chancellor of the Exchequer is already working to fill the country's fiscal gap. Chancellor Reeves plans to impose new fees on users of limited liability partnerships and launch a £2 billion tax increase on lawyers, family doctors and accountants.
The reduction in government debt gives the government more room to maneuver.
The United States
In addition, the strengthening of the US dollar index further amplified the weakness of the British pound against the US dollar. As of press time, the US dollar index (DXY), which tracks the US dollar against six major currencies, was consolidating in a narrow range around Tuesday's high of 99.00, with relatively stable trading.
The market's optimistic expectations that China and the United States are close to reaching a trade deal pushed the dollar up slightly. The US president has previously expressed confidence that the two countries can reach a fair agreement.
U.S. Senate Minority Leader Chuck Schumer revealed on Tuesday that he and House Democratic Leader Hakeem Jeffries had communicated with Trump and planned to negotiate the restart of the government through talks.
Investors are focused on Friday's delayed U.S. Consumer Price Index (CPI) data for September, which will be key to shaping market expectations for the Federal Reserve's monetary policy path.
Economists predict that the year-on-year growth rate of the overall CPI in the United States will rise from the previous 2.9% to 3.1%, while the year-on-year growth rate of the core CPI will stabilize at 3.1%.
Summarize:
The UK CPI exceeded expectations and the US dollar strengthened, triggering a concentrated release of downward risks for the pound. The slowdown in inflation data gave the UK's fiscal and interest rate policies a chance to breathe.
The subsequent coordination of interest rate cuts and tax increases will help the government better use its economic tools to regulate the market. The pound is expected to move from a short-term bearish to a long-term bullish trend. As the interest rate cut path is determined and the government expects the shutdown to end, the US dollar index is expected to help US dollar bulls realize profits and exit the market, which may drive a turnaround in the pound.
Technical Analysis:
The daily chart of GBP/USD shows that the pound remains in a bearish pattern overall, with the 5-, 10-, 20-, and 30-day moving averages aligned in a bearish pattern. The broader pattern also suggests a potential double-top formation, suggesting market bets on a possible UK interest rate cut. Support is around 1.3300, followed by 1.3248, and resistance is around 1.3450.
(GBP/USD daily chart, source: Yihuitong)
At 17:57 Beijing time, the British pound was trading at 1.3322/23 against the US dollar.
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