GBP/USD bounces as soft CPI boosts BoE cut bets

GBP/USD rose 0.42% on Wednesday, recovering toward 1.3600 in a session shaped by softer-than-expected UK inflation data and broad US Dollar weakness. The pair had been consolidating in a tight range between about 1.3450 and 1.3520 for the past few days following the sharp pullback from the late-January high near 1.3870, and Wednesday's move pushed price action back onto the high side of key moving averages.

The Office for National Statistics (ONS) reported that UK Consumer Price Index (CPI) inflation fell to 3.0% in January from 3.4% in December, a sharper decline than expected and the lowest reading since mid-2025. The drop bolstered expectations that the Bank of England (BoE) will cut rates at its March 19 meeting, with markets now pricing roughly 80% odds of a 25 basis point reduction. Governor Andrew Bailey, testifying before parliament's Treasury Committee on Tuesday, had already called a March cut "a genuinely open question," while noting that services price inflation at 4.4% has not eased as much as the BoE had forecast. Chief Economist Huw Pill echoed the caution, warning against being "beguiled" by headline inflation falling toward the 2% target. UK labor data earlier in the week showed unemployment rising to a five-year high of 5.2%, further supporting the case for easing.

The US Dollar side added a tailwind to Cable. The US Dollar Index slipped below 97.80 on Wednesday after President fTrump's State of the Union address on Tuesday night offered no indication of easing tariff policies. The Federal Reserve (Fed) is holding rates at 3.50% to 3.75%, with January minutes showing several officials discussed the possibility of rate hikes if inflation stays above target. US-Iran nuclear talks scheduled for Thursday in Geneva added further geopolitical caution.

Recovery from the 50-day EMA as Stochastic crosses bullish in oversold territory

The pair bounced from the 50-day Exponential Moving Average (EMA) near 1.3525, which has been acting as a pivot since the January rally. The 200-day EMA around 1.3380 continues to rise and is well below current price action, keeping the broader uptrend from late 2025 valid. The Stochastic Oscillator has crossed bullish in the oversold zone, suggesting the pullback from the 1.3870 high may be running out of steam. A sustained push above 1.3600 would be the first sign of buyers re-engaging toward the year-to-date high, while a failure to hold the 50-day EMA would shift focus toward 1.3430 and eventually the 200-day EMA.

GBP/USD daily chart