GBP/USD softens to near 1.3490 in Tuesday’s early Asian session. The Federal Reserve is anticipated to increase interest rates by 25 basis points during its policy meeting on Wednesday. The Bank of England is anticipated to maintain its interest rates at 3.75% during the upcoming Thursday meeting. The GBP/USD pair experiences a decline in momentum, settling near 1.3490 during the Asian trading hours on Tuesday. Expectations of a US Federal Reserve interest rate hike on Wednesday provide some support to the US Dollar against the British Pound. The UK jobs report is scheduled for release on Tuesday. Attention will pivot toward the Bank of England’s interest rate decision on Thursday. Following the US inflation report released on Friday, which indicated that the core Consumer Price Index increased by a greater-than-anticipated 0.3% in August, market participants are increasingly persuaded that the Federal Reserve will implement an interest rate hike to tackle persistent inflationary pressures.
Traders are currently assigning a probability of approximately 92.4% to a rate hike at the central bank’s September policy meeting, a notable increase from the roughly 67% observed prior to last week’s CPI data, as indicated by the CME FedWatch Tool. Fed Chairman Kevin Warsh will conduct a conference after the conclusion of the two-day Federal Open Market Committee meeting on Wednesday. Any dovish remarks from policymakers could lead to a depreciation of the Greenback and serve as a supportive factor for the major pair. Conversely, hawkish remarks from Federal Reserve officials may bolster the USD in the short run. Conversely, the Bank of England is poised to maintain interest rates at their current level on Thursday, even in the face of rising oil prices. Governor Andrew Bailey stated last week that the central bank does not possess a “secret plan” to increase interest rates this year, unless the persistent rise in oil prices, influenced by the conflict in the Middle East, leads to more enduring domestic price pressures.
Financial markets are currently reflecting a 30% likelihood of a quarter-point rate hike on Thursday, as indicated by LSEG data from Monday. This marks an increase from under 10% at the beginning of last week, with the markets nearly fully anticipating a move in November. Strategists highlight that the coming days bring a “relatively heavy” UK data calendar, with “Tuesday’s jobs and Wednesday’s CPI ahead of the central bank decision, followed by retail sales on Friday.” They argue that “fundamentals remain supportive as we note the clear uptrend in UK-US yield spreads since early July,” underscoring that this widening spread continues to back the Pound’s performance. According to Scotiabank, “political developments have been limited despite high profile coverage of UK plans for potentially higher taxes on banks,” with the main “medium-term risk event” identified as the fall budget “scheduled for October 28.”
In the daily chart, GBP/USD maintains a neutral near-term stance as it oscillates between the 20-day Bollinger middle band, which serves as overhead resistance, and a cluster of supports established by the 20-day lower band and the 100-day moving average. The Relative Strength Index (14) remains positioned slightly beneath the 50 line, indicating a lack of significant directional momentum as the price consolidates within the Bollinger envelope. On the topside, a decisive move above the Bollinger middle band at 1.3557 would reveal the upper band near 1.3660 as the subsequent resistance obstacle. On the downside, initial support is observed just under the market around 1.3455 at the lower Bollinger band, followed by the 100-day moving average at 1.3445; a breach below this zone would shift the bias back toward the bears.
