British Pound drops below 1.34 as hot CPI raises prospect of 50-bps Fed hike

• Mounting selling pressure sends GBP/USD down more than 0.40% to 1.3396.
• A 0.3% MoM increase in US Core CPI surpasses the 0.2% forecast.
• A Core CPI reading of 0.3% MoM would prompt Waller to consider a 50-bps hike.

US inflation signals that the Federal Reserve’s (Fed) task remains unfinished, sending the Pound Sterling more than 0.40% lower against the US Dollar on Tuesday. In hawkish remarks, Fed Governor Waller indicated that a 50-basis-point (bps) increase would be justified by a core CPI reading of 0.3% MoM, a figure subsequently borne out by the data. GBP/USD is trading at 1.3396.

GBP/USD falls as US inflation overshoot bolsters Waller’s argument for a bigger rate rise

October’s Core Consumer Price Index (CPI) increased by 0.3% month on month, outstripping the 0.2% forecast, according to the US Bureau of Labour Statistics (BLS). Although headline CPI slowed to 0.4% MoM from September’s 0.6%, it still exceeded expectations of 0.3%.

Describing the economy as strong and the labour market as stable, Governor Christopher Waller nevertheless said inflation remained too high. An improvement in October’s inflation figures would lead him to favour a 25 bps rate rise, he said, whereas a reading similar to those of the previous two months would prompt him to back a 50 bps increase.

According to the CME FedWatch Tool, the probability of a 25 basis points rate rise climbed to 85% after Waller’s comments, while the likelihood of a 50 bps increase stands at 14%.

October’s BRC Like-For-Like Retail Sales in the UK edged up to 1.1% from 1%, falling short of the 1.2% forecast. Attention now turns to Thursday’s Gross Domestic Product (GDP) release, with the economy estimated to have expanded by 0.7% QoQ in Q3.

Thursday’s forthcoming US economic calendar includes housing figures, Initial Jobless Claims and speeches from Fed officials.

GBP/USD Price Forecast: Resistance constrains the technical outlook

Trading at 1.3376 on the daily chart, GBP/USD faces near-term resistance from the closely grouped 50-, 100- and 200-day simple moving averages (SMAs) around 1.3453–1.3457, all above the spot price. Just below current levels lies a descending trend-line support region near 1.3375–1.3226. This positioning points to consolidation within a wider corrective downtrend. Meanwhile, the Relative Strength Index (14), at around 51, suggests neutral but stabilising momentum rather than a clear bullish reversal.

For the pair to relieve the current upside constraint, it would need a sustained break through initial resistance at the 200-day SMA near 1.3453, then the closely positioned 100-day SMA at 1.3455 and 50-day SMA at 1.3457. Such a move would pave the way towards the higher ascending trend-line barriers near 1.3700 and 1.3868. Below the market, the descending trend line at 1.3375 offers immediate support, ahead of the lower trend-line floor around 1.3226. A decisive break beneath that next key level would strengthen the bearish bias and leave the pair vulnerable to further losses.

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