British Pound trades slightly lower below 1.3350 as UK budget and Fed rate decision approach

• Selling pressure nudges GBP/USD towards 1.3335 in early European trade on Tuesday.
• Wednesday will see new Chancellor of the Exchequer John Healey present his maiden budget.
• An unchanged Fed rate is expected when policymakers announce their decision on Wednesday, with traders awaiting the outcome.

Caution keeps traders on the sidelines as GBP/USD slips towards 1.3335 in Tuesday’s early European session. With the UK Autumn Budget and the US Federal Reserve (Fed) interest rate decision both due on Wednesday, market participants are reluctant to take large positions.

Rising global borrowing costs and elevated energy prices stemming from the Iran war form the backdrop to new UK Finance Minister John Healey’s first budget on Wednesday. To reduce the vulnerability of public finances, Healey can curb ballooning health and disability benefits and reform taxes to tackle complexity and perverse incentives.

Revenue mobilisation is another task facing 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 shortfall in defence spending.

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,"

At Wednesday’s conclusion of its October policy meeting, the US central bank is expected to keep interest rates steady. This follows the Fed’s September increase of 25 basis points (bps), which took rates to a range of 3.75% to 4% and marked its first hike since 2023.

The probability of a Fed rate increase on Wednesday is now priced at just 10.5%. Nevertheless, high energy prices continue to fuel bets on a hike before year-end.

Can a BoE policy shift and a calmer UK budget sustain support for the Pound?

In Commerzbank analysts’ assessment, the Bank of England is approaching a turning point in its long-standing effort to “ride out the energy price shock – partly to avoid stifling the real economy too severely”. Their view is that “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,” while “a first interest rate hike… basically fully priced in, and the market [expecting] a further three rises by the middle of next year.” In their words, the expected policy change “has supported the pound in recent weeks.”

Energy is playing a growing role in inflation, Commerzbank points out, noting 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 these are considered alongside “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 the policy dilemma.

The unveiling of Prime Minister Andy Burnham’s new budget is viewed as a further source of stability in this setting. Commerzbank nevertheless warns that “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 is thus coming from the prospect of BoE tightening, better labour market trends, firmer inflation and greater resilience in UK government bonds.

Does Greene’s warning on stalled wage disinflation limit GBP rate-cut expectations?

At 7.4/10, Greene’s speech score on FXS Speechtracker equals the historical average. Although this indicates consistency in tone, it carries a clearly hawkish tilt relative to recent market expectations for the Pound. Her emphasis on wage disinflation stalling above levels compatible with 2% inflation, together with her view that policy should act proactively against second-round inflation risks, strengthens the case against near-term rate cuts.

Greene’s assessment that second-round risks are greater than previously believed is supported by forward-looking pay growth nearer 3.5%, unexpectedly resilient economic activity and indications that labour market slack may have peaked. With wage disinflation stalled and activity holding up, GBP yields are likely to find support, limiting downside for the currency, particularly against peers with weaker wage and demand dynamics.

Technical Analysis: Can GBP/USD shake off its mildly bearish bias below the 100-day SMA?

Trading below the 100-day simple moving average (SMA) leaves GBP/USD with a mildly bearish short-term bias on the daily chart. However, its position above the 20-day Bollinger middle band points to some underlying buying interest within the wider corrective pattern. The upper Bollinger band defines the top of the current volatility envelope. A neutral Relative Strength Index (14) reading of 50.6 suggests evenly balanced directional momentum, leaving room for further declines or consolidation as long as the 100-day SMA caps the pair.

For a recovery, buyers first face resistance around 1.3390 at the 100-day SMA, followed by the 20-day Bollinger upper band near 1.3420. Immediate downside support lies at 1.3285, the 20-day Bollinger middle band. Beyond that, a more substantial structural floor sits close to the lower Bollinger band at roughly 1.3150, 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. Learn more.)