UK inflation has jumped to 3.5% y/y in April, the highest print since April 2024. That increase has hit the British pound the hardest. It was off to the races at first, but has recently had a harder time keeping its productive momentum rolling. At the time of this writing, the GBP/USD currency pair is trading around 1.3395. That represents a small gain of 0.03% for the day.
The latest consumer inflation report reveals a large increase in monthly inflation, skyrocketing up to 1.2%. This would be a huge jump from the current rate of 0.3%. Analysts had predicted a bigger jump, with a monthly inflation rate of 0.3% projected. The rate of core inflation rose sharply to 1.4%, up from 0.5%, exceeding market forecasts of 1.2%. Yet persistent inflationary pressures are still gripping the UK economy. Higher inflation in transportation, housing, and energy sectors is fueling this inflationary trend.
Pound’s Initial Gains and Current Performance
Earlier in the trading day, the pound sterling was looking strong, testing resistance at 1.3408 all-time highs before pulling back a bit to raise caution. So far this week, the currency has appreciated about 1.1%, a robust showing against an appreciating US dollar. The pound hit 1.3468 highs, its best levels since February 2022. It has had a hard time maintaining that momentum.
According to market prognosticators, the pound put up a good fight, but has met stiff resistance at the 1.3422 line in sand. Market sentiment among traders has turned defensive with the advances not yet firmly in the books. They are particularly watching the short-term developments in the UK economy and monetary policy, which can lead to more aggressive currency movements.
Factors Driving UK Inflation
Higher costs for transportation, shelter and energy have been leading drivers for inflation overall. Energy costs have more than doubled in the past year — a huge further strain on families and employers. This is all exacerbating concern about the ongoing cost of living crisis.
With inflation rising ever higher, the Economic Policy Uncertainty Index is pointing the finger at the BoE and calling for retribution in the form of interest rate hikes. Analysts are debating whether the central bank will take action to curb inflation or allow it to stabilize naturally as supply chain issues ease over time.
Market Outlook and Currency Support Levels
Given the overall economic backdrop, traders are looking to see where support will come in for GBP/USD shorts. Next important supports seen at 1.3385 and 1.3371, these are what traders will be watching for a possible bullish breakdown. Investors should continue to be on guard as the currency pair becomes more unstable. A flood of new economic data continues to be released that will undoubtedly affect their decisions.