GBP/USD is experiencing upward momentum, approaching the 1.3240 mark during the early hours of the Asian session on Friday. Fed’s Waller indicated that consecutive rate hikes are not necessary. The UK is confronted with a difficult fiscal landscape, which is exerting downward pressure on the British Pound. The GBP/USD pair strengthens to approximately 1.3240 during the early Asian trading hours on Friday. The US Dollar softens against the British Pound following comments from Federal Reserve Governor Christopher Waller. Traders will monitor the Michigan Consumer Sentiment Index data for October, which is set to be released later on Friday. Fed Governor Christopher Waller stated on Thursday that further rate hikes will likely be necessary to bring inflation down to the Fed’s 2% target. However, he noted there was “flexibility” regarding the pace of these increases and indicated that a pause could be considered at the upcoming October meeting. Markets are currently assigning a probability of approximately 17.7% to the likelihood that the US central bank will increase the interest rate by at least 25 basis points at the upcoming policy meeting, a decrease from 38% observed a week prior, according to the CME FedWatch tool. Markets are currently reflecting an 83% probability of an interest rate increase at the Federal Reserve’s meeting in December. However, UK fiscal concerns may exert pressure on the Cable in the near term. Following the recent peak in the UK’s long-term borrowing costs, which have not been seen since the 1990s, attention is now directed toward Finance Minister John Healey’s inaugural budget scheduled for October 28.
Earlier this week, the UK chancellor remarked that the country’s largest lenders are confronting a “challenging fiscal picture,” yet refrained from indicating whether he would impose higher taxes on banks in the upcoming Budget later this month. Strategists observe that their earlier positive outlook on GBP has been swiftly challenged by recent market movements. Following Tuesday’s move, they had highlighted on 07 Oct, with spot at 1.3265, that “there has been a slight increase in upward momentum, and GBP may edge higher toward 1.3315.” However, that perspective “was invalidated quickly as GBP fell below our ‘strong support’ at 1.3200 with a low of 1.3194.” In their revised outlook for the next 1–3 weeks, UOB notes that “there has been a slight increase in downward momentum, but it is insufficient to indicate a sustained decline.” From this point, they assess that “GBP could edge lower, but any decline is likely to be part of a lower range of 1.3140/1.3280.” In their words, “GBP is unlikely to break clearly below 1.3140,” reinforcing a broadly range-bound bias despite the recent setback. Fed’s Musalem delivers a firmly hawkish message, with a 7.3/10 FXS Speechtracker score essentially in line with the 7.2/10 historical average, underscoring continuity rather than a tonal shift.
The assertion that “more monetary policy firming will be required” to achieve a 2% inflation target, coupled with the observation that the economy and job market are “pretty strong” and “balanced,” underscores a narrative favouring further rate hikes instead of cuts, despite Musalem’s emphasis on approaching meetings with an open mind. Musalem’s observations regarding ongoing demand pressures, stable market inflation expectations, and the structurally elevated real yields influenced by AI investments and fiscal deficits suggest a prolonged period of higher interest rates. This scenario is likely to bolster the Dollar while maintaining the sensitivity of risk assets to shifts in policy. The FXS Fed Sentiment Index decreased by 0.25 points to 138.33, reflecting a slight retreat in perceived hawkishness while remaining solidly in hawkish territory, significantly above the neutral 100 threshold. This configuration-slightly lower index reading yet elevated level-suggests that while the incremental surprise versus prior Fed communication is limited, the policy backdrop remains clearly restrictive, consistent with Musalem’s call for further firming and the steady tone captured by the FXS Speechtracker.
In the daily chart, GBP/USD maintains a bearish near-term outlook as the spot remains below the 20-day simple moving average from the Bollinger Bands and significantly under the 100-day simple moving average. Price is constrained by the upper Bollinger band, while the Relative Strength Index (14) at 39 indicates a modestly bearish momentum without entering oversold territory. This suggests that sellers maintain control, albeit without overwhelming conviction. On the topside, initial resistance is observed at the Bollinger middle band SMA near 1.3295, followed by the 100-day SMA at 1.3402 and the upper Bollinger band at 1.3470. On the downside, the lower Bollinger band at 1.3115 presents the next critical support level, and a decisive breach below this threshold would pave the way for a more substantial decline in the pair.
