GBP/USD continues to decline, approaching the 1.3300 mark during the Asian session on Wednesday. The UK Finance Minister is set to present his inaugural budget on Wednesday, amid increasing global borrowing costs. The Fed is expected to maintain its policy interest rate at its October meeting. The GBP/USD pair continues its downward trajectory, reaching approximately 1.3300 during the Asian trading hours on Wednesday. The British Pound softens against the US Dollar amid a cautious mood ahead of the UK Budget and the Federal Reserve interest rate decision on Wednesday. UK Finance Minister John Healey is poised to unveil his inaugural budget later today, amid increasing pressure to implement measures that alleviate the cost-of-living strain on households while also extending support to businesses. Nonetheless, his options are constrained by elevated government borrowing costs and the substantial tax increases enacted by his predecessor, Rachel Reeves. “It’s hard to be immune in an environment where global bond yields are going higher, but among major developed markets, the UK is looking like one of the cleanest dirty shirts out there,” said Guillermo Felices.
The Fed is widely anticipated to maintain its policy interest rate at the existing target range of 3.75% to 4.0%, while indicating the likelihood of any adjustments in December. Traders will seek additional insights from Fed Chair Kevin Warsh’s speech regarding the future trajectory of US interest rates. Any hawkish remarks from Fed officials could bolster the Greenback and serve as a headwind for the major pair. Markets are currently reflecting a probability of approximately 92.8% that the Federal Reserve will maintain its current interest rates during the upcoming October policy meeting, as indicated by the CME FedWatch tool. The probability of a rate increase in the United States for December is currently assessed at 84.4%. Strategists note that “caution ahead of Wednesday’s UK budget accounts for some of the GBP’s softness against the USD,” with “overnight GBPUSD vols… firmer, reflecting caution ahead of Chancellor Healey’s set-piece delivery tomorrow.” They add that “a budget that maintains fiscal credibility will likely be GBP-neutral at worst.” From a technical perspective, Scotiabank describes the outlook as “neutral/bearish,” highlighting that “the GBP retains a soft undertone versus the USD, driving spot below minor support at 1.3350/55.” This “leaves the October 19th low at 1.3300 exposed and lifts the risk of the pound easing back to the 1.3250/75 range to retrace a little more of its mid-month rebound,” although the bank expects that “modest GBP losses should entice support from bargain-hunters.”
BoE’s Greene scores 7.4/10 on FXS Speechtracker, aligning precisely with the historical average. However, the focus on stalled wage disinflation and the heightened risk of second-round effects indicates a marginal hawkish tilt. Comments indicating that wage disinflation has plateaued at levels inconsistent with 2% inflation, coupled with an economy exhibiting “surprising resilience” and the possibility that labour market slack has reached its peak, suggest that an imminent easing cycle is unlikely and bolster GBP across the crosses. By emphasising the necessity to “proactively lean” against second-round inflation risks, despite forward-looking data suggesting pay growth nearer to 3.5%, Greene effectively diminishes the reassurance provided by moderating wage indicators. For FX, this combination of resilience and persistent wage dynamics indicates that the Bank of England is likely to proceed with caution regarding rate cuts compared to some of its counterparts, thereby constraining potential declines for GBP and maintaining modest support from rate differentials.
In the daily chart, GBP/USD remains positioned beneath the 100-day simple moving average, which sustains a generally bearish outlook, even in light of a slight rebound from recent lows. Price is consolidating just above the 20-day Bollinger SMA, indicating nearby underlying demand, while the Relative Strength Index (14) around 47 remains below the 50 line, suggesting that bullish momentum is still tentative. On the topside, initial resistance is situated at the 100-day SMA around 1.3390, with an additional barrier at the upper Bollinger Band near 1.3415, where sellers may seek to reassert control should the pair extend higher. On the downside, immediate support is observed at the mid-Bollinger band around 1.3285, followed by a more significant cushion at the lower Bollinger Band near 1.3150, where a breach would likely strengthen the existing bearish sentiment.
