UK inflation stalls, rate cut expectations rise, and GBP reacts. What’s next for sterling? 🤔 Our concise market breakdown covers USD strength, GBPCAD movements, and what Friday’s data could mean for BoE policy. Read more in our article below ⬇️
Key Insights:
- Sterling weakens as markets price in potential rate reductions
Market Recap:
The US dollar continued its upward momentum for a third straight session, supported by renewed weakness in the Japanese yen. The move followed Sanae Takaichi’s victory in Japan’s parliamentary leadership race, with the Bank of Japan reaffirming its cautious approach and signalling no urgency to raise interest rates.
Meanwhile, GBPCAD eased back from its nine-year high after Canadian inflation came in stronger than expected. This shift prompted markets to increase the likelihood of a 25bps rate cut next week to around 67%, unwinding some of sterling’s recent gains.
Today's Market Watch:
Sterling came under pressure this morning after UK inflation data disappointed expectations. Headline CPI remained unchanged at 3.8% year-on-year in September, missing forecasts of a rise to 4.0%. Core inflation slipped to 3.5%, while services inflation held at 4.7%, signalling a broader cooling in price pressures.
With inflation failing to pick up, markets have sharply revised their outlook for Bank of England policy. There is now around a 70% chance of a 25bps rate cut by December, up from just 30% before the data. This shift reinforces expectations that the BoE may adopt a more dovish approach heading into year-end, increasing the likelihood that its next move is a rate reduction.
Looking ahead, attention turns to Friday’s retail sales and PMI figures. Any sign of further economic weakness could add to pressure on the BoE and further boost rate cut expectations, potentially weighing on GBP sentiment.
22nd October 2025
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