GBP/USD Drops to $1.3120 as UK Inflation Cools and Dollar Strength Builds
GBP/USD continued its descent into the European session, hitting a new low for the week at around $1.3120 - the UK inflation numbers...
Quick overview
- GBP/USD has hit a new weekly low around $1.3120 due to lower UK inflation and a stronger dollar.
- Market sentiment is increasingly leaning towards expectations of a Bank of England interest rate cut before Christmas.
- Uncertainty surrounding the upcoming Autumn Budget is adding further pressure on the pound.
- Technical indicators suggest continued downward pressure on GBP/USD, with critical support levels at $1.3084 and $1.3048.
GBP/USD continued its descent into the European session, hitting a new low for the week at around $1.3120 – the UK inflation numbers and a resurgence in dollar strength were too much for the pound to handle. The pair was having trouble finding any traction after it broke through the short-term trend line, which says it all about where market sentiment is right now – they’re increasingly expecting the Bank of England to cut interest rates before Christmas.
The latest numbers from the Office for National Statistics showed inflation coming in a bit lower than expected at 3.6% for the year over October – that’s down from 3.8% the month before. And core inflation eased off a bit too, to 3.4% – all of which is in line with the Bank of England’s views of late. This adds to the feeling that the Bank might just cut rates in December. As a result, the pound is still facing all sorts of headwinds.
UK Policy Concerns Add Extra Pressure
Uncertainty around Chancellor Rachel Reeves‘ upcoming Autumn Budget is also weighing on sterling. While the government backed away from tax increases after improved forecasts from the Office for Budget Responsibility, investors remain wary of the broader fiscal outlook. Bond markets have already begun pricing higher risks heading into 2026, adding to bearish pressure on GBP.
Key drivers pulling GBP lower include:
- Softer UK inflation readings across headline and core components
- Rising expectations of a near-term BoE rate cut
- Cautious positioning ahead of the November 26 budget
- Weakening UK growth sentiment and bond-market concerns
Dollar Firms Ahead of Fed Minutes and NFP
The US dollar remains supported near a one-week high as investors scale back expectations for another Federal Reserve rate cut next month. While the longest US government shutdown has delayed several data releases, markets still expect the upcoming FOMC Minutes and NFP report to provide clearer signals on policy direction.
A print near the expected 50,000 jobs for September would indicate modest resilience. However, a weaker outcome could reignite growth worries and limit dollar gains.
GBP/USD Technical Outlook: Pressure Builds Below $1.3140
Technical conditions continue to favor the downside. GBP/USD is trading around $1.3120, testing the 0.236 Fibonacci retracement, a level that has acted as a pivot several times this month. A break beneath this area exposes the next support levels at $1.3084 and $1.3048.
The RSI hovering near 46 reflects soft, but not exhausted, momentum. The pair also remains below short-term moving averages, which continue to cap recovery attempts. If buyers reclaim $1.3188, the correction may stabilize, but as long as price stays below $1.3140, downward pressure remains dominant.
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