Hot UK CPI and BoE rate rise bets fail to push British Pound above 1.3400

• Geopolitical risks underpin the Dollar, keeping GBP/USD under pressure below 1.3400.
• UK inflation climbs to 3.5% as energy prices rise.
• Markets put the chance of a November BoE rate rise at 95% before the pivotal Autumn Budget.

UK inflation has reinforced the case for a Bank of England rate rise at its next meeting, yet Sterling is struggling to build on its gains against the US Dollar on Wednesday. Heightened geopolitical tensions are helping the Dollar recover, leaving GBP/USD hovering below 1.3400.

Sterling struggles to advance as geopolitical tensions lift Dollar demand despite higher UK inflation

With few US economic releases on Wednesday, market participants are taking some cues from US equities. Shares are trading higher as enthusiasm surrounding AI fuels a rally in technology stocks. Meanwhile, US Treasury yields remain firm, with the 10-year T-note yielding 5.10%.

The geopolitical backdrop is providing further support for the Dollar. Although Tuesday's news had pointed to a possible resolution, subsequent reports disclosed that the Pakistani Army Chief had met Iranian officials in Tehran and presented a “compromise proposal,” while N12 news reported that he had delivered the US a “final warning.” The implication is that attacks would resume unless Iran agrees to a peace deal.

September's UK Consumer Price Index (CPI) showed annual inflation rising to 3.5% from 3.1%, according to the Office for National Statistics (ONS). The increase was largely driven by a jump in energy prices following the outbreak of conflict in the Middle East.

The inflation figures follow the latest UK employment report, which showed a modest increase in wages and further indications of a resilient labour market.

Against this backdrop, traders had assigned a 95% probability to a quarter-percentage-point Bank of England rate rise at its meeting on 5 November.

Next week's first budget from British Finance Minister John Healey is now the focus. Speaking earlier this month, Healey said the budget would strengthen Britain's resilience to the energy-price shock caused by the Iran war and provide the country with "a bit of breathing space."

GBP/USD Price Forecast: Resistance keeps the technical bias bearish

At 1.3387 on the daily chart, GBP/USD retains a bearish near-term bias. Advances remain capped by the latest triple simple moving average at 1.3409 and the broken downward resistance trend line at 1.3405. A wider cluster of structural hurdles also sits above the pair, marked by the broken upward support trend lines at 1.3620 and 1.3805. Meanwhile, the Relative Strength Index (14), at around 57, points to a recovery in bullish momentum, though it remains moderate and has not yet overcome overhead supply.

The first upside hurdle is the broken downward resistance trend line near 1.3405, with the triple simple moving average close behind at 1.3409. A daily close above this band would clear a path towards the next resistance area at the broken upward trend line around 1.3620, followed by 1.3805. Immediate support, meanwhile, comes from the former downward resistance trend line break at 1.3271. A retreat below that level would strengthen the broader bearish bias and leave lower levels exposed in the sessions ahead.

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