GBP/USD Forecast: Pound Sterling Falls after Sharp Inflation Slowdown

Modified: Wednesday, 20 May 2026 19:31 BST - Written by David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Falls after Sharp Inflation Slowdown

The Pound US Dollar (GBP/USD) exchange rate traded on the back foot on Wednesday following the release of the UK’s latest inflation figures.

At the time of writing, GBP/USD was trading at around $1.3385, marginally lower than the opening levels seen earlier in the session.

The Pound (GBP) struggled for momentum on Wednesday after UK inflation data fell short of expectations.

Figures published by the Office for National Statistics showed headline inflation slowed from 3.3% to 2.8% in April, missing forecasts for a smaller decline to 3%.

Core inflation also eased more sharply than expected, slipping from 3.1% to 2.5%, compared to market expectations for a reading of 2.6%.

Analysts attributed much of the slowdown to the reduction in the UK energy price cap last month, although many warned that rising geopolitical tensions in the Middle East could still fuel inflationary pressures later in the year.

The softer inflation figures, combined with the weak UK labour market data released earlier in the week, prompted investors to scale back expectations that the Bank of England (BoE) will raise interest rates in the near term.

The US Dollar (USD) found moderate support during Wednesday’s session as cautious market sentiment boosted demand for safer assets.

Investor nerves remained frayed by ongoing uncertainty surrounding relations between the US and Iran.

Although hopes for a diplomatic resolution have not completely faded, reports of renewed tensions and continuing disagreements over access through the Strait of Hormuz kept traders wary.

Still, gains in the ‘Greenback’ were somewhat restrained ahead of the release of the latest minutes from the Federal Open Market Committee’s most recent policy meeting later in the evening.

Near-Term GBP/USD Forecast: Weak UK PMIs to Extend Sterling Losses?

Looking ahead to Thursday, the Pound to US Dollar (GBP/USD) exchange rate could remain under pressure with the publication of the UK’s latest PMI surveys.

Should the preliminary May data point to weaker growth across the UK private sector, expectations for further BoE tightening may continue to fade, leaving Sterling vulnerable to additional losses.

Meanwhile, the latest US S&P PMI releases may also influence movement in the US Dollar. Although they tend to have less impact than the ISM surveys, any signs that business activity in the US economy remains resilient could lend further support to the ‘Greenback’.

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TAGS: Pound Dollar Forecasts