Pound Sterling Hits 3-Year High vs USD After Hot UK Inflation Data

Pound Sterling Hits 3-Year High Against USD After Scorching UK CPI Figures

The British Pound (GBP) extended its rally on Wednesday, reaching its highest level in over three years against the US Dollar (USD), climbing as high as 1.3470. The sharp move comes in response to stronger-than-expected inflation data from the United Kingdom (UK), which significantly shifted expectations around the Bank of England’s (BoE) future monetary policy path.

According to data from the UK Office for National Statistics (ONS), the headline Consumer Price Index (CPI) rose by 3.5% year-over-year in April, exceeding the forecasted 3.3% and sharply higher than the 2.6% recorded in March. On a monthly basis, CPI jumped 1.2%, also beating estimates and well above March’s 0.3% increase.

The core CPI — which excludes volatile items such as food, energy, alcohol, and tobacco — climbed 3.8% YoY, also above forecasts and up from 3.4% in March. Additionally, service inflation — often watched closely by the BoE — surged to 5.4% from 4.7%, highlighting broad-based price pressures.

Market Reaction and BoE Outlook

The market interpreted the inflation surprise as a sign that the BoE may delay any potential policy easing. With inflation still significantly above the central bank's 2% target, traders are beginning to price out near-term rate cuts, which has supported further buying of the Pound.

USD Remains Under Pressure

Meanwhile, the US Dollar continues to struggle, weighed down by fiscal concerns following Moody’s recent credit downgrade of US sovereign debt. The lack of clarity around US trade policy and softening economic sentiment — as noted by several Federal Reserve officials — has led to a sustained retreat in the Greenback.

Looking Ahead

With inflation in the UK proving stickier than anticipated, the focus will shift to upcoming speeches by BoE officials and whether further data will solidify a higher-for-longer interest rate outlook. Until then, GBP/USD is likely to remain supported, especially as USD weakness continues to dominate broader currency markets.