GBP/USD: Sterling Hits 2025 High Above $1.2630 but Rising UK Inflation Flips the Script

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By Tradingview

(Tradingview)

Consumer prices dashed above estimates in January, leading to a drop in UK’s currency. It got even more complicated for BoE.

Inflation Spikes to 3%

The GBPUSD pair nosedived Wednesday morning, moments after tackling a new peak of 2025. The sterling shot through $1.2630 to mark its highest level of the year but then the latest inflation data threw the currency off kilter, leading to a 0.2% drop in the exchange rate from the session high.
The pair slipped to its opening levels around $1.2610 after January’s consumer price report showed inflation surprised analysts with a 3% rise, above the 2.8% anticipated and the 2.5% logged in December.

BoE’s Clouded Trajectory

Now the Bank of England is staring at an even bigger problem — inflation is complicating the progress toward interest rate cuts that should give the economy more breathing space. But the economy is already in pretty bad shape. In other words, rate cuts are unlikely, economic slowdown is likely.
Meat, bread and cereals are at the center of January’s price growth. These same items fell in prices this time last year. Services inflation hit 5%, which was below analyst consensus views of 5.2%.

Sterling Outlook

Where’s the sterling heading now? The surprise uptick caught forex speculators off guard. Ideally, an inflation surprise to the upside should benefit the local currency as it diminishes prospects of rate cuts, thus keeping yields relatively high. But instead, the pound fell as an immediate reaction.
Volatility is expected to continue with the bulls likely to make a move and try to pump it up a little bit. The 100-day moving average is the next target, sitting at $1.2671. A potential double top is resting at the 200-day moving average at $1.2787

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