GBP/USD: Sterling Slides Below $1.29 as UK Inflation Softens to 2.8%. More Rate Cuts Coming?

British currency traded lower to the dollar after consumer prices eased more than expected in February. Here’s how this changes the rate-cut outlook.

🥊 Inflation Knocks Sterling

• The GBPUSD pair got knocked early Wednesday when the UK released its monthly inflation data. Turns out, consumer prices eased more than expected in February, coming in at 2.8% against consensus views for 3.0%. It was also lower than January’s pace of 3.0%. What does it mean for the pound-dollar?
• The sterling slipped a bit to crack $1.2900 from a session high of $1.29, marking a session low of $1.2890. Low inflation is generally not-so-good news for the local currency, in this case, the pound.

💪 Pound Well Above Major SMAs

• The pound has been sitting pretty high against the dollar in relative terms. Over the past three months, the UK currency has climbed a whopping 6.5%, jumping from $1.21 to current market prices. Besides inflation data kicking in to support the upside swing, there was also broad dollar weakness adding fuel to the fire.
• The rate is also well above all three major simple moving averages (50-day, 100-day, 200-day) with the 200-day line creeping around at $1.28, indicating that the long-term trend continues to be bullish.

💥 Rate Cut Outlook Gets a Boost

• The dip in consumer prices rejiggered investor expectations around interest rate cuts from the Bank of England. Now four out of five traders believe that the UK central bank will deliver two quarter-point rate trims this year. Previously, about 60% of the trading crowds expected that outcome for 2025.
• Some more fundamentals, the inflation print was released just hours before chancellor Rachel Reeves is set to unveil more than £10 billion of spending cuts as part of the high-stakes Spring Statement.