GBP/USD Forecast: Hot US CPI Sends Pound Sterling Lower as Fed Hike Bets Jump

Modified: Wednesday, 14 October 2026 19:31 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Hot US CPI Sends Pound Sterling Lower as Fed Hike Bets Jump

The Pound US Dollar (GBP/USD) exchange rate came under significant pressure on Wednesday, with stronger-than-expected US inflation figures triggering a sharp sell-off in Sterling against the ‘Greenback’.

At the time of writing, GBP/USD was trading at around $1.3189, down approximately 0.5% from Wednesday’s opening levels.

Fresh inflation data sent the US Dollar (USD) sharply higher on Wednesday, as price pressures across the US economy proved more persistent than economists had anticipated.

Headline inflation accelerated from 3.4% to 3.7% in September, surpassing forecasts for a more modest increase to 3.6%.

Core inflation also surprised to the upside, climbing to 2.6% year-on-year from 2.4% in August.

The hotter-than-expected figures prompted investors to reassess the outlook for Federal Reserve monetary policy ahead of the central bank’s upcoming decision later this month.

According to CME’s FedWatch tool, the probability of an interest rate hike rose to 50% following the release, compared with just 20% beforehand.

This shift in expectations helped propel the US Dollar higher as markets priced in a greater chance of further monetary tightening.

Sterling struggled to find support on Wednesday after Bank of England (BoE) Chief Economist Huw Pill struck a cautious note on the outlook for UK interest rates.

Speaking on the sidelines of the International Monetary Fund’s (IMF) annual gathering in Bangkok, Pill acknowledged that tighter monetary policy would be necessary to contain inflationary pressures.

However, he challenged market expectations that the BoE could deliver as many as four interest rate increases over the next year.

Investors have continued to price in an aggressive tightening cycle, with a November rate hike carrying a 92% probability.

Markets are also anticipating three further quarter-point increases by September 2027.

Given Pill’s standing as one of the more hawkish members of the Monetary Policy Committee (MPC), his reluctance to endorse such an aggressive path has raised questions over whether the BoE will tighten policy as forcefully as markets currently expect.

Near-Term GBP/USD Forecast: Weak UK GDP Figures Could Add to Sterling’s Woes

Looking towards the second half of the week, Sterling could face another challenge when the UK releases its latest monthly GDP figures.

Economists expect August’s data to show a 0.1% contraction in economic output.

A weaker reading would reinforce concerns about the UK’s economic momentum and potentially complicate Chancellor John Healey’s efforts to manage the public finances ahead of his first Autumn Budget later this month.

Across the Atlantic, Thursday’s US retail sales figures could influence the US Dollar’s recent rally.

Economists anticipate a marked slowdown in consumer spending, and a weaker-than-expected result may temper expectations for further Federal Reserve tightening, potentially limiting USD gains.

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TAGS: Pound Dollar Forecasts