Why is the British Pound stalling below 1.3400 despite strong UK CPI and bets on a BoE rate hike?

With geopolitical risks underpinning the Dollar, GBP/USD remains under pressure below 1.3400.
Higher energy costs push UK inflation up to 3.5%.
Ahead of the pivotal Autumn Budget, the probability of a November BoE rate hike climbs to 95%.

Gains in the Pound Sterling against the US Dollar remain difficult to sustain on Wednesday, with GBP/USD hovering below 1.3400 as mounting geopolitical tensions fuel a recovery in the Greenback. This comes despite United Kingdom inflation reinforcing the case for a Bank of England rate increase at its next meeting.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Can rising UK inflation support Sterling as geopolitical tensions lift Dollar demand?

Technology stocks are lifting US equities into positive territory as enthusiasm over AI drives a rally, offering market participants some cues on a Wednesday with little US economic data. Meanwhile, US Treasury yields remain firm, with the US 10-year T-note yielding 5.10%.

Support for the Greenback is also coming from geopolitical developments. Although Tuesday's news had pointed to a potential resolution, reports indicated that the Pakistani Army Chief had met Iranian officials in Tehran and put forward a “compromise proposal,” while N12 news said he had conveyed a “final warning.” to the US. The implication is that attacks would restart if Iran does not agree to a peace deal.

Higher energy prices resulting from the Middle East conflict were the main driver of the UK's September inflation increase, according to the Office for National Statistics (ONS). The Consumer Price Index (CPI) climbed to 3.5% YoY from 3.1%.

This inflation release follows the latest UK employment report, which showed a modest increase in wages together with further evidence of labour market resilience.

Against this backdrop, market pricing put the probability of a quarter-percentage-point Bank of England rate increase at its 5 November meeting at 95%.

Probability of BoE interest rate moves - Source: Prime Terminal

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

GBP/USD Price Forecast: Can the pair clear near-term resistance?

Chart Analysis GBP/USD — Daily price chart for GBP/USD

Trading at 1.3387 on the daily chart, GBP/USD retains a bearish short-term bias, with the latest triple simple moving average at 1.3409 and the downward resistance trend line break at 1.3405 limiting gains. Further overhead, the upward support trend line breaks at 1.3620 and 1.3805 form a wider cluster of structural hurdles above the pair. Although the Relative Strength Index (14), at around 57, points to improving bullish momentum, that momentum remains moderate and has not yet absorbed the overhead supply.

The first upside hurdle lies near 1.3405 at the downward resistance trend line break, with the triple simple moving average at 1.3409 just beyond it. A daily close above this range would pave the way for a move towards the next resistance area, marked by the upward trend line break around 1.3620, followed by 1.3805. Immediate support, meanwhile, sits at 1.3271, where the former downward resistance trend line break now provides a floor. A retreat below that level would strengthen the broader bearish bias and leave lower levels vulnerable in the sessions ahead.

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

How Is the Pound Sterling Performing Today?

The British Pound's strongest performance today was against the Euro. Its percentage changes against the major currencies listed are shown in the table below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.12%	-0.01%	-0.02%	0.07%	-0.41%	-0.10%	0.12%
EUR	-0.12%		-0.22%	-0.16%	-0.09%	-0.48%	-0.27%	-0.05%
GBP	0.01%	0.22%		0.04%	0.11%	-0.27%	-0.07%	0.16%
JPY	0.02%	0.16%	-0.04%		0.09%	-0.29%	-0.10%	0.13%
CAD	-0.07%	0.09%	-0.11%	-0.09%		-0.39%	-0.17%	0.04%
AUD	0.41%	0.48%	0.27%	0.29%	0.39%		0.22%	0.42%
NZD	0.10%	0.27%	0.07%	0.10%	0.17%	-0.22%		0.23%
CHF	-0.12%	0.05%	-0.16%	-0.13%	-0.04%	-0.42%	-0.23%

Percentage movements between major currencies are displayed in the heat map. Read the base currency from the left-hand column and the quote currency from the top row. To see GBP (base)/USD (quote), for instance, select the British Pound in the left-hand column and follow that row across to the US Dollar; the cell at their intersection shows the percentage change.