Below 1.3350: British Pound slips ahead of UK budget and Fed rate decision

• 1.3335 is the approximate level for GBP/USD as it edges lower in early European trading on Tuesday.
• Wednesday brings the first budget from new Chancellor of the Exchequer John Healey.
• An unchanged rate decision is expected from the Fed on Wednesday as traders await the announcement.

1.3335 is where GBP/USD trades after slipping in Tuesday’s early European session. With the UK Autumn Budget and the US Federal Reserve (Fed) interest rate decision due on Wednesday, traders are staying on the sidelines rather than committing to large positions.

Rising global borrowing costs and high energy prices linked to the Iran war form the backdrop to Wednesday’s first budget from the UK’s new Finance Minister John Healey. To make public finances less vulnerable, Healey can rein in ballooning health and disability benefits and reform taxes to tackle complexity and perverse incentives.

Additional revenue is also needed by the new Chancellor of the Exchequer. An increase of one percentage point across all income tax rates could raise approximately £11 billion a year by the 2029–30 financial year, covering the defence spending gap.

PGIM's global investment strategist Guillermo Felices 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,"

A 25 basis points (bps) rate increase at the Fed’s September policy meeting took rates to a range of 3.75% to 4%. It was the first hike since 2023. When its October policy meeting concludes on Wednesday, the US central bank is likely to keep rates on hold.

Only a 10.5% probability of a Wednesday Fed rate increase is now priced into markets. High energy prices nevertheless continue to fuel bets on a hike before year-end.

Pound gains support from BoE shift and calmer UK budget proceedings

A turning point is approaching in the Bank of England’s long-running effort to “ride out the energy price shock – partly to avoid stifling the real economy too severely”, according to analysts at Commerzbank. In their assessment, “the combination of rising inflation, a slight improvement in the labour market, and fairly strong growth figures this year is likely to lead to a change of heart next week,” with “a first interest rate hike… basically fully priced in, and the market [expecting] a further three rises by the middle of next year.” The expected policy change “has supported the pound in recent weeks.”

Energy is playing a growing role in inflation, Commerzbank notes, highlighting that “the four direct energy components in the inflation index now account[ing] for almost one percentage point of the year-on-year total.” When combined with “highly energy-dependent components, the 2% target has in fact already been practically reached.” The difficulty for the BoE is that “the less energy-intensive components (primarily services) continue to contribute significantly… inflation has recently drifted further away from the target,” highlighting its policy dilemma.

The presentation of Prime Minister Andy Burnham’s new budget is viewed as a further source of stability in this environment. Commerzbank adds a caveat: “while this is unlikely to result in major progress (Burnham recently announced that significant changes would only occur following a potential re-election), market participants are likely to be relieved that the presentation of the new budget is proceeding relatively calmly.” Support for the Pound therefore comes from several factors: expected BoE tightening, better labour market trends, firmer inflation and greater resilience in UK government bonds.

GBP rate cut hopes constrained as Greene warns wage disinflation has stalled

A score of 7.4/10 places Greene’s speech in line with the historical average on FXS Speechtracker. The tone remains consistent, but is distinctly hawkish relative to recent market expectations for the Pound. Resistance to near-term rate cuts is reinforced by her emphasis on wage disinflation having stalled above levels consistent with 2% inflation, and her view that policy should act proactively against second-round inflation risks.

Greene sees a greater risk of second-round effects than previously thought. Supporting that assessment are forward-looking pay growth closer to 3.5%, unexpected economic resilience and indications that labour market slack may have peaked. With wage disinflation stalled and activity holding up, yields are likely to find support and GBP’s downside should remain limited, particularly against currencies with weaker wage and demand dynamics.

Technical Analysis: 100-day SMA caps GBP/USD, leaving a mildly bearish bias

Below the 100-day simple moving average (SMA), GBP/USD retains a slightly bearish near-term outlook on the daily chart. Trading above the 20-day Bollinger middle band points to some underlying buying interest within the wider corrective pattern. The upper Bollinger band defines the current volatility envelope’s ceiling. A neutral Relative Strength Index (14) reading of 50.6 indicates balanced directional momentum. Further declines or consolidation remain possible as long as the 100-day SMA limits the pair’s advance.

Around 1.3390, the 100-day SMA provides the first resistance level. A recovery attempt would then face the 20-day Bollinger upper band near 1.3420. Initial support lies at 1.3285, the 20-day Bollinger middle band. Below that, the lower Bollinger band at roughly 1.3150 marks a more substantial structural floor, where a deeper retreat would be expected to draw buying interest.

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