British Pound reverses lower against USD after Fed’s Waller warns of a larger rate hike

• 1.3430 in Focus as British Pound Reverses Early Gains Against US Dollar.
• Fed’s Waller Signals Larger December Rate Hike if US Core CPI Holds Steady or Accelerates.
• December Rate Hike Remains Possible, Says BoE’s Lombardelli.

The British Pound (GBP) trades near 1.3430 against the US Dollar (USD). Sterling has erased its early advance and moved into negative territory during Tuesday’s European session. A swift US Dollar recovery following hawkish comments from Federal Reserve (Fed) Governor Christopher Waller has pushed GBP/USD lower.

Having recovered its earlier losses, the US Dollar Index (DXY) is almost unchanged near 101.65 at the time of writing. The index measures the Greenback against six major currencies.

High inflationary pressures and a robust labour market warrant further interest rate increases, Waller said during the European session. Ahead of October’s United States (US) Consumer Price Index (CPI) release at 13:30 GMT, he also warned that a “half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.”

0.3% core CPI threshold puts larger December hike in focus as Waller warns on inflation

At 8.6/10, Waller’s FXS Speechtracker score exceeded his historical average of 7.2/10, reflecting a markedly more hawkish tone and greater concern over persistent inflation. His explicit willingness to consider a half-point Fed rate rise in December if core CPI reaches around 0.3% or above points to a strong preference for further tightening. Support for at least a quarter-point increase even if the data improve also indicates little tolerance for upside inflation surprises. Broad-based price rises, emerging producer price pressures and the possibility of longer-lasting energy shocks featured prominently in his remarks. Despite solid employment conditions and still-solid GDP growth, inflation risks remain the dominant influence on the policy response.

A 1.58-point increase took the FXS Fed Sentiment Index to 143.91, leaving it firmly in hawkish territory. The reading confirms a meaningful hawkish shift in this speech relative to the established baseline. Together, the higher index level and above-average FXS Speechtracker score suggest markets should assign greater probability to additional Fed tightening. Recalibrated rate expectations create upside risk for the Dollar.

According to MUFG/BTMU, "October headline and core CPI are expected to slow to 0.3%mom and 0.2%mom, respectively." Their warning that "a downside inflation surprise would challenge rate hike expectations and could weigh on the dollar," suggests softer data could curb the recent increase in bets on Fed tightening.

Over recent weeks, the US Dollar has generally faced selling pressure. Greater optimism over a US-Iran deal has driven oil prices lower, anchoring global inflation expectations.

For Sterling, the prospect of further rate increases remains alive following comments from Bank of England (BoE) Deputy Governor Clare Lombardelli. In an interview with the Guardian, she said: “Wouldn’t rule out rate hike possibility in December,”

1.3433 GBP/USD: Technical Outlook

GBP/USD stands at 1.3433 on the daily chart. Trading above the 20-day Exponential Moving Average (EMA), at roughly 1.3378, preserves a modest bullish bias. The pair has also recovered the 50.0% Fibonacci retracement of its latest decline, around 1.3407. A Relative Strength Index (14) reading near 56 points to healthy upward momentum without signs of overextension. Buyers therefore appear to retain the advantage while the pair stays above these support levels.

The first upside hurdle is the 61.8% Fibonacci retracement near 1.3470. An extended advance would bring the higher 78.6% retracement barrier, around 1.3560, into view. Below the current price, the 50.0% retracement at 1.3407 offers initial support, ahead of the 20-day EMA near 1.3378. A larger retreat would put the 38.2% level around 1.3343 in focus, followed by the 23.6% retracement at 1.3265 and, ultimately, the structural floor near 1.3138.

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

6/10 Lombardelli score signals softer tone; December hike remains possible

A 6/10 FXS Speechtracker score places Lombardelli notably below her historic average of 7.2/10. The reading suggests slightly less confidence, with attention turning to a “low-gear economy” and a cooling labour market. Her reference to a “real fall-off in hiring”, alongside limited redundancies, indicates weakening demand rather than acute stress. That backdrop reduces the immediate urgency for aggressive monetary tightening.

A modest hawkish tilt nevertheless remains: explicitly “not ruling out” a December increase preserves policy flexibility despite uncertainty in the data. The implications for GBP are mixed. Weaker growth signals could limit near-term gains, while the continuing prospect of another rate rise provides a cushion against declines.