Forex Today: Pound Sterling Rises on Hot UK Inflation, US Dollar Under Pressure

Forex Today: Pound Sterling Rises on Hot UK Inflation, US Dollar Under Pressure

The British Pound (GBP) is gaining momentum early Wednesday, May 21, following the release of stronger-than-expected UK inflation data for April. The CPI print came in hotter than forecast, with year-over-year inflation rising to 3.5%, compared to the expected 3.3%. This marks a notable deviation from the Bank of England's 2% target and has fueled speculation that the BoE may need to maintain a hawkish stance longer than previously anticipated.

In response, GBP/USD climbed toward multi-month highs near 1.3450, as market participants priced in a reduced likelihood of near-term interest rate cuts by the BoE.

US Dollar Remains Under Pressure

Meanwhile, the US Dollar (USD) continues to trade on the back foot amid ongoing political uncertainty and trade policy concerns. Dovish commentary from Federal Reserve officials — who flagged falling business and consumer confidence — has weighed on the Greenback. In addition, Moody's recent downgrade of the US credit rating continues to erode sentiment around the USD.

The lack of high-tier economic data midweek has left traders focused on geopolitical headlines and central bank commentary, with any developments in US-China trade relations or inflation commentary from Fed speakers likely to move the markets.

Market Outlook

• GBP: Stronger inflation supports GBP, reducing odds of near-term rate cuts.
• USD: Weighed by trade tensions, political instability, and Fed caution.
• Focus: Central bank remarks and geopolitical developments in the absence of key economic reports.

Traders are likely to maintain a cautious tone ahead of Thursday's PMI data from the US and eurozone, which could offer new insights into the global growth outlook.