GBP/USD Falls to Three-Month Low as Pound Weakens Against Majors

The GBP/USD has fallen just 0.5% across Q3 but is trading at a three-month low, despite booking solid gains in July and August that were unwound in September with a 2% decline.

The pound weakened against major peers like the Japanese yen, Australian dollar, and Canadian dollar, while rising modestly against the euro, New Zealand dollar, and Swiss franc. The balance of risks points to a downside bias for the pound against the US dollar across Q4 as widening Fed-BoE policy divergence continues to support the USD.

The UK's inflation rate rose to 3.1% annually in August, its highest level since March, due to higher energy prices from the Middle East conflict. Brent crude prices fluctuated between $70 and over $110 per barrel during Q3, while natural gas prices also rose sharply.

The Bank of England's near-term inflation forecast points to CPI inflation rising to around 3.7% in Q4 2026 and 4.2% in Q1 2027. While core inflation remained at 2.6%, services inflation was unchanged at 3.4%. However, food-price inflation is expected to rise in the coming months, adding another source of pressure.