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GBP/USD falls after UK CPI cools for the first time in 5 months

GBP/USD is falling after UK inflation data supported the case for the Bank of England to cut interest rates again in December.

UK CPI was 3.6% in October, down from 3.8% in September, and in line with forecasts. Service sector inflation, which is watched closely by the central bank, was cooler than expected at 4.5% down from 4.7% and below expectations of 4.6%.

The data points to price pressures in the UK cooling and being on a sustained downward path. This supports the case for a 25 basis point rate reduction next month, and the market is also pricing in a slightly faster pace of cuts in 2026.

There is, of course, a level of caution ahead of Reeves' budget next week. However, the chancellor said she'll take targeted action to further bring down inflation and the cost of living.

Meanwhile, the US dollar is rising versus its major peers amid a risk-off mood in the equities market ahead of Nvidia's earnings later today and ahead of the FOMC minutes.

The Fed cut rates by 25 basis points at the September meeting, but Federal Reserve chair Jerome Powell adopted a more cautious tone in the press conference following it.

Recent Fed speakers have also sounded hawkish, prompting the market to rein in December rate-cut expectations to 46%, down from 67% last week.

A cautious tone to the minutes could lift the USD. Any disappointment in Nvidia's earnings could also boost safe-haven flows into the USD.
 

GBP/USD forecast – technical forecast

GBP/USD has trended lower from the 1.3725 September high, trading below its descending trendline, falling to a low of 1.3010. The slight recovery from this low ran into resistance at the 20 SMA and has eased lower.

Sellers will look to test support around 1.31, last week’s low, and the April 3 high. Below here, 1.30 comes into focus. Should sellers take out this support, it opens the door to a deeper selloff towards 1.27.

Any attempt at a recovery would first need to rise above the 1.32 resistance and the 20 SMA to expose the 200 SMA at 1.33. A rise above 1.3350 puts the pair on a more stable footing.

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DAX steadies at a 5-month low ahead of Nvidia earnings

The DAX is showing signs of steadying after falling to a 5-month low, although the mood remains cautious ahead of Nvidia’s earnings after the close today.

Global stocks have sold off this week amid souring risk appetite. Worries of stretched tech valuations, particularly towards AI-related firms, combined with fading hopes of a December rate cut, have hit stocks hard.

Nvidia earnings are the litmus test for the AI trade, which has helped power stocks across the year. Any disappointment from Nvidia could spark a fresh leg lower for stocks, particularly AI and tech.

On the data front, Eurozone CPI was confirmed at 2.1% year on year in October, in line with the preliminary reading. Inflation is in line with the ECB’s target level, supporting the view that the central bank could be done with its rate-cutting cycle.

Tomorrow also sees the release of the September non-farm payroll, which could impact market sentiment. Expectations are for 75k jobs to be added.  Weak data could support Fed rate cut expectations.
 

DAX forecast – technical analysis

The DAX failed at resistance 24,400 and rebounded lower, breaking below the rising trendline and the 200 SMA, dropping to support just above the 23,050 level, the June low. This level is holding for now, but if sellers break it down, that could spark a deeper selloff towards 22,000, the mid-February low.

Buyers may be encouraged by the hammer candlestick that could be appearing today. Any recovery needs to rise above 23,300-23,400 resistance, the September low and the 200 SMA. A rise above the rising trendline at 23,700 puts the DAX on a firmer footing and brings 24,000 back into play.
 

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