GBP/USD Under Pressure as UK Inflation Rises and US Dollar Strengthens

The GBP/USD has shown modest losses in Q3 but still trades at a 3-month low. The pound's weakness is largely attributed to the US dollar's recovery and the growing policy divergence between the Fed and BoE.

UK inflation rose to 3.1% in August, its highest level since March, due to higher energy prices from the Middle East conflict. However, core inflation remains at 2.6%, and services inflation is unchanged at 3.4%. The Bank of England's near-term inflation forecast suggests CPI will rise to around 3.7% in Q4 2026 and 4.2% in Q1 2027.

The UK labour market has shown signs of slowing, with vacancies falling to their lowest level in five years and wage growth moderating. This could weigh on the GBP and highlight the policy challenges faced by the BoE.