The Pound drifts lower as the Fed lines up a rate above the Bank of England's

• GBP/USD drifts lower to close near 1.3470, down 0.2%, ahead of the Fed's first hike since 2023
• UK CPI lands at 06:00 GMT on Wednesday, forecast at 3.1% from 2.9%
• Futures price four Bank of England hikes by mid-2027 and a 15% chance the first comes Thursday

GBP/USD closed Tuesday near 1.3470, down 0.2%. Wednesday's Asian and London hours are the last before the Fed is expected to raise its rate for the first time since July 2023. By the New York close its ceiling should sit a quarter-point above Bank Rate. The Bank of England votes on Thursday on whether to keep up, and is expected to let it.

Four hikes priced on each side, and only one side has a date

A currency pair prices the gap between what two central banks are expected to pay, not the level either sits at. Bank Rate is 3.75%, the Fed's range tops out at 3.75%, and Wednesday takes the American ceiling to 4.00%. Futures then have the Fed at 4.25% or higher by March and, more likely than not, at 4.50% or higher by June. Britain's rate futures, according to Trading Economics, fully price four Bank of England hikes by the middle of next year, which is the same number. Of the three big central banks, the European Central Bank (ECB) has raised its rate twice since June, the Fed raises on Wednesday, and the Bank of England has not moved in 2026.

The difference is the calendar. The Fed's first hike is Wednesday. The Bank of England has held at 3.75% at five straight meetings. The July vote was 6-3, with three members wanting a quarter-point, a desk expects the same three and the same split on Thursday, and futures give the meeting about a 15% chance of a move. The market has four Bank of England hikes by next summer and gives Thursday a 15% chance of being the first. Wednesday widens the gap a quarter-point in the Dollar's favour, and Thursday is expected to leave it there.

Inflation reaches the Bank's forecast peak a quarter early

UK consumer prices land at 06:00 GMT on Wednesday, twelve hours before the Fed. The forecast is 3.1% for the year to August, from 2.9% in July, with the core rate steady at 2.6% and the retail price index at 3.5%. July's rise came from the household energy price cap. The Bank of England's own August projection had inflation peaking near 3.2% in the fourth quarter, so Wednesday's forecast is the peak arriving a quarter early, and the release is the one scheduled item that can lift the Pound before the Fed does the opposite.

Tuesday's labour data went the other way. The claimant count rose 27.8K in August against a forecast of 8.3K and a fall of 11.8K in July, payrolled employees fell 26K on the month and 145K on the year, and unemployment held at 4.9% against a forecast of 5.0%. Regular pay is rising 3.5%, which splits into 2.9% in the private sector and 6.3% in the public sector. The committee sets one rate for both. A hot inflation number over a soft jobs number is the argument the committee already has, and it is the Pound's one route higher on Wednesday morning.

Gilts pay the most since 2007, and Sterling is not collecting

The 10-year gilt yield traded near 5.4% last week, its highest since 2007, and GBP/USD closed Tuesday at the bottom of its 30-day range. Yields help a currency when the central bank is the one raising them, because the extra return is a policy. When the market raises them on its own, the extra return is the price of holding the debt, and the currency does not collect it. Goldman Sachs argues the gilt market's move toward pricing hikes may have gone too far. The Governor said last week that another hike was not inevitable. The market has four of them.

The Fed decides at 18:00 GMT on Wednesday, with the quarter-point priced at 92.5% and the press conference at 18:30 GMT, after August retail sales at 12:30 GMT, forecast up 0.8%. The Bank of England follows at 11:00 GMT on Thursday, with Bank Rate forecast to stay at 3.75% and the vote forecast at six to hold, three to hike and none to cut. British retail sales at 06:00 GMT on Friday are forecast down 0.2% for August after a 0.5% fall.

Levels and bias

Resistance: The 1.3500 area is the first hurdle, where Tuesday's high and the 50-day Exponential Moving Average (EMA) sit together, and Tuesday's close beneath that average was the first since early August. The 1.3550 area capped every session from September 3 to September 10 and is the one that matters. The late-August highs near 1.3600 sit behind it.

Support: Tuesday's low just above 1.3450 is the first floor, and it is where the pair turned on September 2. The 200-day EMA and the early-August base share the 1.3400 area, and the late-July low near 1.3300 is the next level below.

Bias: Bearish while the 1.3500 area caps, with the 1.3400 area the first objective and 1.3300 the second. The daily Stochastic Relative Strength Index (Stoch RSI), a momentum gauge, reads near 16, beneath the 20 line where the early-August selling stopped. A daily close back above 1.3550 voids the case.

GBP/USD daily chart