The Pound Sterling experienced a sharp decline against the US Dollar on Tuesday, with GBP/USD losing approximately 0.7%. The pair dropped from session highs near 1.3650 to test the 1.3500 level before rebounding modestly to 1.3540 by the end of the session. This move placed GBP/USD at the lower end of its recent multi-day range, reflecting heightened volatility in both European and US trading sessions [1].
Political instability in the UK contributed to the pressure on the Pound, as over 70 Labour Members of Parliament publicly called for Prime Minister Keir Starmer's resignation following significant losses in local elections. This deepening uncertainty led to a sell-off in UK gilts across the curve, with the 30-year yield briefly reaching 5.81%, its highest level since 1998. Market participants expressed concerns that a leadership transition could result in looser fiscal policy [1].
On the US side, April's Consumer Price Index (CPI) data came in hotter than expected, with headline CPI rising 3.8% year-over-year and core CPI at 2.8% year-over-year. Core CPI also increased 0.4% month-over-month. The elevated readings were attributed to ongoing shelter and energy price pressures, including effects from the Strait of Hormuz closure and high Brent crude prices. The CPI release triggered broad US Dollar strength against major currencies, including the Pound. Market attention now turns to Wednesday's Producer Price Index (PPI) to see if wholesale price pressures mirror the CPI surprise, with retail sales and weekly jobless claims data due Thursday [1].
Looking ahead, the focus shifts to Catherine Mann of the Bank of England, who has indicated she would vote to raise the main Bank Rate if inflation expectations remain elevated into 2027. The BoE projects UK inflation will breach 5% this year, driven by energy price pass-through from Iran-related disruptions. Thursday's preliminary first-quarter UK GDP release is expected at 0.6% quarter-over-quarter, which could further influence market sentiment [1].
Technical analysis shows GBP/USD trading at 1.3540, maintaining a bearish intraday tone below the day's open at 1.3608, which now acts as resistance. The Stochastic RSI is deep in overbought territory near 92, suggesting that the recent bounce may lose momentum. On the daily chart, GBP/USD holds a modest bullish near-term bias, trading above both the 50-day and 200-day EMAs at 1.3482 and 1.3380, respectively [1].
CONCLUSION
GBP/USD faced significant downward pressure due to hot US inflation data and escalating UK political instability, with market participants reacting strongly to both developments. The outlook remains uncertain, with upcoming UK GDP data and BoE commentary likely to drive further volatility. Investors are closely watching for signs of sustained inflation and potential policy shifts in both the UK and US.