US inflation data loom as Pound returns above 1.33

• GBP/USD regains 1.3300 as a three-session decline comes to an end.
• Gilt yields edge lower despite reduced headroom in Chancellor Healey's first Budget.
• US core PCE inflation for September is forecast at 3.1%, with the release due on Thursday.

A recovery to just above 1.3300 following the Fed's decision to hold rates has put GBP/USD on course for its first rise in four sessions. Dollar weakness drove the move, with little contribution from Chancellor Healey's first Budget. Well before the Budget speech began, the pair had touched a session low just above 1.3250, its weakest level since mid-October. Trading was largely unchanged during the speech itself.

Despite new taxes on banks and gambling, the Office for Budget Responsibility (OBR) estimates Chancellor Healey's headroom for 2029-30 at £15 billion, compared with £24 billion in March. Nevertheless, the 10-year gilt yield edged down after the Budget. The OBR forecasts about £14 billion in additional debt interest this year, almost matching the available headroom. With the Pound weaker against the Euro on the day, the rise in GBP/USD reflects a falling Dollar rather than Sterling strength.

Interest rates were held at 3.75%-4.00% by the Fed. According to Fed Chair Warsh, the tightening in credit conditions since September, including higher borrowing costs for the technology build-out, demonstrates that the Fed's policy is working. During his question-and-answer session, the Dollar Index reached its session low as GBP/USD touched its session high.

US inflation and wage data take focus

A rise to 3.1% from 3% is forecast for annual September core Personal Consumption Expenditures Price Index (PCE) inflation, due at 12:30 GMT on Thursday. Headline inflation is expected to reach 3.6%, up from 3.4%. Friday then brings the third-quarter Employment Cost Index at 12:30 GMT, with a reading of 0.8% forecast against the previous 0.9%. As the first US price and wage releases since the decision to hold rates, these figures will help shape 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.

GBP/USD remains below key moving averages

Roughly 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 subsequent decline into Wednesday's low. The pair remains beneath both the 50-day Exponential Moving Average (EMA), near 1.3350, and the 200-day EMA, just below 1.3400. It traded around the latter between 20 and 22 October. Despite three declining sessions, daily momentum remains overbought.

Daily chart: GBP/USD