GBP/USD finds support at 1.1185 and ticks up to 1.1200 area

• The pound attempts to consolidate losses in the 1.1200 area.
• Investors scale down hopes of aggressive BoE tightening despite hot CPI data. 
• GBP/USD's decline could extend below 1.10 – ING.

The pound seems to be attempting to set a bottom at 1.1185 after its reversal from 1.1445 highs earlier this week. The pair dropped for the second consecutive day on Wednesday, weighed by negative inflation data and political uncertainty in the UK.

Sterling dives further following hot CPI figures

Consumer inflation accelerated beyond expectations in September, the annual CPI increased to 10.1% from 9.9% in the previous month, against market expectations of a 10.0% reading. The market, however, has scaled down hopes of an aggressive BoE rate hike to fight inflation on the back of the looming recession risks, which has hit GBP demand.

Furthermore, the turmoil in the UK government, with the ruling Tory party plotting to replace the recently elected Prime Minister Liz Truss after her tax cut fiasco is adding negative pressure on the pair.

On the other end, the sourer market mood has favored the safe-haven US dollar, which surged higher on Wednesday, underpinned by hopes of aggressive monetary tightening by the Fed and higher US bond yields.

GBP/USD: A return below 1.10 is on the cards – ING

FX analysts at ING see the pair depreciating lower, probably below 1.1000: “We still struggle to see a return to 1.15+ levels in cable, as a combination of political instability, risks of a deeper recession and smaller rate hikes by the BoE along the path of fiscal rigour – along with a strong dollar - may more than offset the benefits of quieter debt-related concerns (…) It’s too early to dismiss a return to sub-1.10 levels.”

Technical levels to watch