The UK currency is facing the prospect of further interest rate cuts, which could undermine its ability to deliver strong returns. • The GBP/USD pair fell below $1.30 early Wednesday after the UK released its September inflation report. For the first time in three years, annual consumer price growth dropped to 1.7%, a positive sign for Bank of England policymakers, but not for sterling bulls. This marks the first time inflation has slipped below the central bank’s 2% target since April 2021. • Lower inflation eases the burden on businesses and consumers, who have dealt with price increases as high as 10.1% (September 2022). It also reduces pressure on the Bank of England, allowing it to move more comfortably towards cutting interest rates. However, this is where the sterling takes a hit—lower rates tend to reduce the currency’s ability to generate passive income. • In response, forex traders sold off the pound in favor of the US dollar, anticipating another rate cut at the Bank of England’s November meeting. The result? Selling pressure shaved 0.7% off the pound-dollar exchange rate this morning. Looking at the bigger picture, the sterling has lost around 3% of its value since hitting a 2024 high against the dollar.