Below 1.3400: British Pound slips ahead of UK CPI inflation release

• 1.3375 in focus as GBP/USD slips in early Asian trading on Wednesday.
• Resilience in UK employment emerged from the latest labour market figures.
• No guidance on the rate outlook from Fed Chair Warsh.

GBP/USD slips to around 1.3375. The decline comes in early Asian trading on Wednesday, although a UK labour report that beat expectations may limit losses in the major pair. Attention now turns to UK Consumer Price Index (CPI) inflation figures for September, due later on Wednesday, for further direction.

The UK Unemployment Rate dropped to 4.7 in the three months to August from 4.9% in July, according to figures published on Tuesday by the Office for National Statistics (ONS). Despite another monthly decline in vacancies, unemployment reached its lowest level in more than a year.

Economists forecast September headline CPI inflation of 3.4% YoY and a core reading of 2.7% YoY for the same period. The forthcoming UK inflation release will draw close scrutiny, as it is likely to cement the case for the Bank of England (BoE) to deliver its first rate increase in over three years in November.

A 25 basis points (bps) BoE rate increase at the next meeting on November 5 is almost fully reflected in market pricing, LSEG data show.

Following Chair Kevin Warsh’s speech, markets are reassessing the Federal Reserve’s (Fed) next step, even as figures published last week showed US CPI inflation gathering pace in September.

Whether the central bank will raise short-term rates or leave them unchanged at its October policy meeting remains unclear. The Fed Chairman offered no advance signal, saying he does not "prejudge" interest-rate decisions.

UK labour resilience supports Pound as BoE hike bets strengthen

Recent UK labour figures and wage trends strengthen the argument for additional BoE tightening, according to analysts at Societe Generale. Their assessment is that "UK average earnings growth also picked up ever so fractionally in the private sector and will strengthen the hand of the MPC hawks at the BoE who back higher rates now to avoid having to deal with second round effects later."

Societe Generale challenge the view among some observers that labour conditions are easing, stressing that "the logic that the labour market is loosening has been driven by the fall in vacancies, down 5.1% yoy, but both real and nominal pay have been stable." Alongside the energy backdrop, they see this as leaving the central bank little scope to hold off: "With oil prices climbing to the highest levels since May, there is little that will stop the BoE from raising rates in November to 4%."

Persistent wage pressure remains evident despite fewer vacancies. The analysts cite ONS Vacancy Survey feedback indicating that "smaller firms may not be recruiting because of increases in labour cost," while noting in markets that "GBP/G10 bid after surprise decrease in unemployment rate to 15-month low cements case for BoE November rate increase," as firmer macroeconomic conditions and the policy outlook start to alter positioning. They explain: "the run-up to the Autumn budget has in previous years typically been accompanied by investors liquidating GBP/G10 but the stronger macro backdrop and BoE outlook are giving the pound a slight edge over the dollar and the euro."

Recent bearish positioning may also be vulnerable to a reversal, the data suggest. In Societe Generale’s assessment, "the price action suggest the accumulation of CFTC short positions has gone too far. The pound could be in demand on short covering and if bullish year-end seasonals re-establish themselves after the Budget next week." The analysts also note that "UK CPI is published tomorrow," with the release potentially influencing both expectations for the BoE’s November decision and Sterling’s path towards year-end.

7.4/10: Greene’s wage concerns sustain BoE hawkish tilt

Greene scores 7.4/10 on FXS Speechtracker, in line with the historical average. The message nevertheless carries a clear hawkish tilt, given the focus on stalled wage disinflation and heightened risks of second-round effects. With forward-looking indicators signalling pay growth closer to 3.5% and wages still above levels compatible with 2% inflation, the case strengthens for the Bank of England to act proactively against persistent inflation.

A hawkish position also draws support from remarks that economic resilience has exceeded expectations and labour market slack may already have peaked. These observations suggest growth-related downside risks offer limited restraint on policy. For GBP, resilient activity, tight labour conditions and worries over second-round inflation effects favour a firmer rate trajectory than markets may have priced in, rather than rapid easing.

GBP/USD Technical Analysis: 100-day SMA limits rebound

The 100-day simple moving average (SMA) continues to constrain GBP/USD on the daily chart, leaving the broader outlook bearish until that barrier is regained. Trading just above the upper Bollinger Band nevertheless points to a possible near-term extension of the recent rebound. At around 56, the Relative Strength Index (14) indicates strengthening momentum and growing buyer traction. However, the nearby 100-day SMA limits upside potential unless a more decisive breakout emerges.

Immediate resistance stands at the 100-day SMA, at 1.3390. A daily close above it would reduce the prevailing bearish constraint and create scope for a more lasting recovery. Failure to clear this barrier would leave GBP/USD exposed to fresh selling pressure back into the Bollinger range. Initial downside support sits around 1.3365 at the upper Bollinger Band, ahead of the middle Bollinger SMA near 1.3255 and the lower band around 1.3150. Deeper pullbacks towards these levels could attract renewed demand.

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