Australia Exchange is concerned about whether the pound can hold the 1.2850 support. If it falls below, it will further decline to 1.2700.

Mathew Weller, head of global research at FOREX.com, said: "The support level of 1.2850 could lead to a rebound against the dollar by the end of the week, but if it falls below that level, it could continue to fall below 1.2700." Dominic Bunning, FX strategist at HSBC, said weaker-than-expected UK inflation in June should add to the pound's recent short-term downward momentum.

According to market analyst Gary Howes, a new analysis shows that the pound must hold the key support level of 1.2850 against the dollar or risk falling to 1.27.Mathew Weller, head of global research at FOREX.com, said: "The support level of 1.2850 could lead to a rally against the dollar before the weekend, but if it breaks below that level, it could continue to fall below 1.2700."

Weller believes that 1.2850 is a reasonable area for GBP/USD bears to take profits before the weekend, so a rebound above 1.2900 is possible before the weekend.

Markets now see a roughly 40% chance that the Bank of England will raise interest rates by 50 basis points at its next meeting on August 3, given decelerating inflation.

Whether sterling will face further meaningful selling pressure depends on how long these rate hikes are expected to last and to what extent the improved economic outlook boosts the pound

Georgette Boele, senior currency strategist at ABN AMRO, said further cuts in Bank of England interest rate expectations are likely to continue. This could weigh on the pound this year.

Dominic Bunning, currency strategist at HSBC, quipped that the pound was "unreasonably priced".

The headline inflation rate reported by the UK on Wednesday was 7.9%, lower than the market expectations of 8.2%, and all sub-indicators were also lower than expected.

"These numbers should add to the recent short-term downward momentum in sterling, which we expect to continue," Mr. Bunning said.

GBP/USD daily chart

At 13:46 on July 24, Beijing time, the pound was trading at 2875/77