**Rewriting and Expanding on the Article by eFXdata: “GBP/USD: Softer CPI to Keep the Pair Under Pressure – MUFG”**
*Original authorship credited to eFXdata and referenced analysis by MUFG Bank.*
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### Introduction
The British Pound (GBP) remains sensitive to shifts in UK economic data, especially inflation readings. The prospect of softer inflation has become central to GBP/USD movements, with markets recalibrating their expectations for the Bank of England’s monetary policy. In the wake of the latest Consumer Price Index (CPI) numbers, analysts from MUFG Bank have offered insights into how these developments may shape the currency’s trajectory in the near term. This article recaps their analysis and expands with views from other financial commentators regarding the impact of UK inflation, the Bank of England’s policy outlook, and the broader implications for GBP/USD.
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### Key Takeaways from MUFG’s Analysis
**1. Recent Trends in GBP/USD:**
– The GBP/USD pair has hovered close to its lowest levels in two months.
– Weakness in the pound has coincided with the release of softer UK economic data, particularly on inflation.
**2. UK Inflation Data:**
– The latest CPI figures showed a decline in both headline and core inflation.
– Headline CPI for year-on-year (YoY) rose by 4 percent, which, while still above the Bank of England’s 2 percent target, showed further easing.
– Lower inflation data increases pressure on the Bank of England to halt or reverse rate hikes.
– MUFG points out that the fall in inflation was slightly more than anticipated by consensus expectations.
**3. Policy Implications:**
– The Bank of England has maintained a “data-dependent” stance, placing significant weight on upcoming CPI releases.
– Softer CPI readings increase the likelihood that the BoE will opt to keep rates on hold for longer or even consider monetary easing sooner than previously thought.
– Market pricing for UK rates has responded by lowering expectations for further rate hikes.
– According to MUFG, a dovish recalibration by the BoE would translate into underperformance of the pound.
**4. Impact on GBP/USD:**
– The GBP/USD’s trajectory is pinned to relative US and UK monetary policies.
– With the Federal Reserve maintaining a more hawkish posture, the policy divergence could further weigh on GBP.
– A weaker pound is likely if the BoE signals less urgency in combatting inflation through rate hikes.
– MUFG’s conclusion: The risk bias for GBP/USD is to the downside, as the currency remains vulnerable to softening inflation and dovish BoE signals.
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### Expanding on the Analysis: Further Perspective
To comprehend the full picture surrounding GBP performance and policy expectations, it is useful to incorporate the views of other financial institutions and analysts. Below, we elaborate on the drivers highlighted by MUFG and supplement with external insights:
#### 1. The UK’s Inflation Backdrop
– Britain
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