Above 1.3400: British Pound maintains gains as hot CPI bolsters BoE rate hike bets

• 1.3405 is the level around which GBP/USD holds modest gains in early Asian trading on Friday.
• At its next meeting on November 5, the BoE is widely expected to raise borrowing costs.
• A Reuters poll points to an October rate hold by the Fed, followed by another increase in December.

1.3405 is where GBP/USD trades with modest gains in Friday’s early Asian session. Stronger-than-expected UK September Consumer Price Index (CPI) figures have reinforced expectations of a more hawkish Bank of England (BoE), lifting the British Pound (GBP) slightly against the US Dollar (USD). Later in the day, attention turns to the UK Retail Sales report.

September UK Consumer Price Index (CPI) inflation accelerated to 3.5% year on year, exceeding the 3.4% forecast and rising from 3.1% a month earlier. Figures released by the Office for National Statistics on Wednesday showed inflation at an 11-month high following a jump in petrol and diesel prices. Core CPI inflation also beat expectations: the annual rate reached 2.8% in September, against a market consensus of 2.7% and August’s 2.6%.

A 25 basis point (bps) increase in the BoE’s key interest rate to 4.0% next month carries a 98% market-implied probability, LSEG data show. Such a move would mark the first rate rise since 2023. Most traders also price in another increase of the same size in December, when the central bank holds its final meeting of the year.

Nearly all economists surveyed by Reuters expect the Federal Reserve (Fed) to leave interest rates unchanged at its October policy meeting before raising them in December. Policymakers continue to signal patience, despite persistent inflation making the case for a firmer response. Fed Chair Kevin Warsh offered no clear indication of how soon the next increase might arrive.

EUR/GBP Under Pressure as BoE Rate Expectations Support Sterling

ING analysts see more than domestic political popularity behind the Pound’s recent gains in EUR/GBP. They observe that “it seems like sterling is riding on the coat-tails of PM Andy Burnham's popularity. In reality, it looks like there is both independent sterling strength and independent euro weakness at play in EUR/GBP.” Although the bank concedes that “earlier this summer, we had felt that sterling gains would not last,” it now notes that “greater market confidence in a Bank of England tightening cycle – we look for 25bp hikes in February and November – makes sterling a high-carry European currency.”

Fiscal developments are unlikely to have much market impact in ING’s view: “next week's UK budget looks unlikely to derail the recent EUR/GBP break below 0.8400.” The bank expects scope for continued pressure on the cross, citing “the euro still having plenty of room to drop on French politics,” and concluding that “EUR/GBP can stay offered in a 0.8360-0,8430 range for the time being.”

7.4/10 Score: Greene Maintains Hawkish Bias as Wage Disinflation Stalls

At 7.4/10, Greene’s FXS Speechtracker score is in line with the historical average. It indicates a consistently hawkish position, rather than a tougher tone. Her focus on stalled wage disinflation at levels incompatible with 2% inflation, together with her view that policy should act proactively against second-round effects, favours keeping policy restrictive for longer. That stance limits the Pound’s near-term downside.

Despite forward-looking indicators suggesting pay growth closer to 3.5%, Greene’s warning that second-round risks are greater than previously believed indicates that she still considers the labour market too strong for policy to be eased safely. Her references to unexpected economic resilience and the possibility that labour market slack has peaked add to the hawkish message. Rate cuts are therefore likely to be pushed back, while the Pound may continue to find support against the Euro and the Dollar.

100-Day SMA Underpins GBP/USD: Technical Analysis Remains Bullish

Holding above the 100-day simple moving average (SMA) and well above the Bollinger middle band leaves GBP/USD with a mildly bullish daily-chart outlook. The pair is approaching the upper Bollinger band, pointing to a test of near-term upside levels. Meanwhile, the Relative Strength Index (14) reads 58.6, a positive reading that has not yet reached overbought territory. This leaves scope for additional gains before momentum becomes overstretched.

The upper Bollinger band at 1.3412 provides the first resistance level. A decisive daily close above it would clear a path for the recent recovery to extend. First support lies at the 100-day SMA of 1.3390. Below that, the Bollinger middle band around 1.3275 and the lower band near 1.3140 offer further support. These levels should limit corrective declines as long as the broader bullish bias remains intact.

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