Above 1.33: Pound back in focus ahead of US inflation data

• 1.3300 reclaimed as GBP/USD ends three consecutive sessions of losses.
• Gilt yields decline despite reduced fiscal headroom in Chancellor Healey's first Budget.
• 3.1% forecast for September's US core PCE inflation, due Thursday.

GBP/USD is trading just above 1.3300 following the Fed's decision. Dollar weakness after the rate hold drove the pair's first advance in four sessions; Chancellor Healey's first Budget contributed little. Well before the Budget speech began, the pair touched a session low just above 1.3250, its weakest level since mid-October. Trading was largely unchanged during the speech.

£15 billion is the headroom the Office for Budget Responsibility (OBR) projects for Chancellor Healey in 2029-30, compared with £24 billion in March, despite new taxes on banks and gambling. Even so, the 10-year gilt yield declined. The OBR forecasts about £14 billion in additional debt interest this year under the Budget, almost matching that headroom. Sterling has weakened against the Euro on the day, underscoring that the GBP/USD advance reflects a falling Dollar.

With its rate unchanged at 3.75%-4.00%, the Fed pointed to evidence that policy is taking effect. Fed Chair Warsh said credit conditions had tightened since September, including higher borrowing costs for the technology build-out, showing that the Fed's policy is working. During his question-and-answer session, the Dollar Index hit its session low as GBP/USD reached its session high.

3.1% core PCE forecast leads the calendar

At 12:30 GMT on Thursday, September's core Personal Consumption Expenditures Price Index (PCE) is expected to show annual inflation of 3.1%, up from 3%. Forecasts put the headline rate at 3.6%, versus 3.4% previously. Friday brings the third-quarter Employment Cost Index at 12:30 GMT, with 0.8% expected after 0.9%. As the first US price and wage releases since the rate hold, these figures will inform whether the Fed raises rates in December.

With no UK releases scheduled before the weekend, Sterling's next domestic event is the Bank of England (BoE) decision on 5 November. A rise in the UK's Bank Rate from 3.75% to 4.00% is expected by almost every research house.

1.3350 and 1.3400 EMAs remain above GBP/USD

About half of GBP/USD's rise from just below 1.3150 on 14 October to just above 1.3400 on 22 October was erased by the retreat into Wednesday's low. The pair remains beneath its 50-day Exponential Moving Average (EMA), near 1.3350, and its 200-day EMA, just below 1.3400. It traded around the latter from 20 to 22 October. Despite three declining sessions, daily momentum remains overbought.

GBP/USD: daily price chart