Political Chaos and Hot US Inflation Drag Pound to 1.35

While UK politics was the primary mover, the pound’s decline was compounded by a hotter-than-expected US inflation print. The consumer price index came in above consensus, pushing the US dollar broadly higher as it recalibrated expectations for Federal Reserve policy. The immediate effect was a jump in US yields and a bid for the greenback. For a currency pair like GBP/USD, which is highly sensitive to rate differentials, this was a second direct hit. This echoes the pattern seen earlier this year when the Pound Falls on US Inflation Surprise and UK Political Turmoil.

The logic is simple: a strong US CPI print pushes back the timeline for Fed rate cuts, widening the interest rate advantage that the dollar holds over sterling. With the Bank of England still expected to cut rates later this year, and markets now paring back expectations for easing from the Fed, the resulting squeeze sent cable below the 1.35 handle. The pound had already been under pressure from the political saga; the CPI data magnified the sell order flow.

GBP/USD at 1.35: A Technical and Sentiment Marker

The 1.35 level is not just a round number. It represents a zone where previous support had held during bouts of volatility. The fact that it gave way, even briefly, on Tuesday signals that the market is no longer treating political risk as a transient headline. The move above 0.87 in EUR/GBP suggests that the deleveraging of long-pound positions is broad-based, hitting cross rates as well.

Liquidity in cable often thins out during European afternoon hours, which can exaggerate moves. The combination of a domestic political shock and an external dollar catalyst, however, makes this repricing structural rather than a liquidity flash. The next concrete decision point will be any statement from Downing Street that either calms nerves or confirms a leadership vacuum. Additionally, the next scheduled UK inflation release will test whether the domestic economic backdrop can offset the political drag. Without a clear stabilizing force, the pound could retest the lows from earlier this year, with 1.33 emerging as the next significant support.

For traders tracking the GBP/USD profile and forex market analysis, the interplay between political risk and US inflation is likely to dominate price action in the coming sessions. It is a stark reminder that in currency markets, political fundamentals can reprice faster than any central bank decision.