British Pound falls to around 1.3300 as UK budget and Fed rate decision approach

• The 1.3300 level comes into view as GBP/USD falls further during Wednesday’s Asian session.
• Rising global borrowing costs form the backdrop to the UK Finance Minister’s first budget, due on Wednesday.
• An unchanged policy interest rate is the likely outcome of the Fed’s October meeting.

At around 1.3300, GBP/USD is extending its losses in Wednesday’s Asian trading session. Caution before Wednesday’s UK Budget and Federal Reserve (Fed) interest rate decision is weighing on the British Pound (GBP) against the US Dollar (USD).

With his first budget due later today, UK Finance Minister John Healey faces growing pressure to ease households’ cost-of-living burden and offer support to businesses. High government borrowing costs and the substantial tax rises introduced by his predecessor, Rachel Reeves, nevertheless leave him with limited room for manoeuvre.

Guillermo Felices, PGIM's global investment strategist, said: "It's hard to be immune in an environment where global bond yields are going higher, but among major developed markets, the UK is looking like one of the cleanest dirty shirts out there,"

Expectations broadly point to the Fed holding its policy interest rate within the current target range of 3.75% to 4.0%, while offering an indication of the likelihood of a December move. For further guidance on the US interest rate outlook, traders will focus on the speech by Fed Chair Kevin Warsh. Hawkish comments from Fed officials could strengthen the Greenback, putting the major pair under pressure.

According to the CME FedWatch tool, markets assign a nearly 92.8% probability to rates remaining unchanged at the Fed’s October policy meeting. For December, the probability of a US rate increase is 84.4%.

Sterling weakens ahead of UK budget as GBP/USD support levels come into focus

Ahead of the UK budget, Scotiabank strategists attribute part of Sterling’s weakness to pre-budget positioning, noting that “caution ahead of Wednesday’s UK budget accounts for some of the GBP’s softness against the USD,” and that “overnight GBPUSD vols… firmer, reflecting caution ahead of Chancellor Healey’s set-piece delivery tomorrow.” In their assessment, “a budget that maintains fiscal credibility will likely be GBP-neutral at worst.” Their technical view is “neutral/bearish,” with the bank observing that “the GBP retains a soft undertone versus the USD, driving spot below minor support at 1.3350/55.” The resulting position “leaves the October 19th low at 1.3300 exposed and lifts the risk of the pound easing back to the 1.3250/75 range to retrace a little more of its mid-month rebound,” though Scotiabank anticipates that “modest GBP losses should entice support from bargain-hunters.”

Greene’s wage warning tempers GBP rate-cut expectations

A score of 7.4/10 on FXS Speechtracker puts the BoE’s Greene exactly at the historical average. Her focus on stalled wage disinflation and an increased risk of second-round effects nevertheless gives the remarks a slightly hawkish slant. Wage disinflation has, she says, stalled above levels compatible with 2% inflation. Together with an economy displaying “surprising resilience” and labour market slack that may already have peaked, this argues against an imminent easing cycle and lends support to GBP on the crosses.

Although forward-looking figures suggest pay growth is moving closer to 3.5%, Greene’s call to “proactively lean” against second-round inflation risks places less weight on the reassurance offered by moderating wage indicators. In foreign exchange markets, that combination of economic resilience and persistent wage pressures suggests the Bank of England will cut rates more slowly than some of its peers. This limits GBP’s downside, with interest rate differentials continuing to provide modest support.

Technical Analysis: GBP/USD stays under pressure beneath the 100-day SMA

Despite a modest bounce from recent lows, the daily chart retains a mildly bearish bias as GBP/USD remains beneath its 100-day simple moving average (SMA). Consolidation just above the 20-day Bollinger SMA points to underlying demand nearby. Meanwhile, the Relative Strength Index (14), at around 47, remains below 50, indicating that bullish momentum is still tentative.

The 100-day SMA, around 1.3390, provides the first resistance level, ahead of the upper Bollinger Band near 1.3415. Should the pair climb further, sellers may attempt to regain control there. Initial support lies around 1.3285 at the middle Bollinger band, with a stronger cushion near 1.3150 at the lower Bollinger Band. A break below that level would likely strengthen the existing bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)