British Pound edges lower below 1.3350 ahead of UK budget, Fed rate decision

• GBP/USD drifts lower to around 1.3335 in Tuesday’s early European session.
• New Chancellor of the Exchequer John Healey will release his first budget on Wednesday.
• Traders await the Fed rate decision on Wednesday, with no change in rates expected.

The GBP/USD pair declines to near 1.3335 during the early European trading hours on Tuesday. Traders prefer to wait on the sidelines and avoid taking big positions ahead of the UK Autumn Budget and US Federal Reserve (Fed) interest rate decision on Wednesday.

UK new Finance Minister John Healey will deliver his first budget on Wednesday against a backdrop of rising global borrowing costs and high energy prices due to the Iran war. Healey can make public finances less fragile by deflating ballooning health and disability benefits and introducing tax reforms to address complexity and perverse incentives.

The new Chancellor of the Exchequer also needs to increase revenue. Raising all income tax rates by one percentage point could generate approximately £11 billion annually by the 2029–30 financial year to cover the gap in defense spending.

"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, PGIM's global investment strategist.

The Fed raised rates by 25 basis points (bps) to a range of 3.75% to 4% in its September policy meeting, its first hike since 2023. The US central bank is likely to leave interest rates unchanged at the conclusion of its October policy meeting on Wednesday.

Markets are now pricing in only 10.5% odds that the Fed will lift rates on Wednesday, although elevated energy prices are still prompting bets on a hike before year-end.

Pound support builds as BoE shift and calmer UK budget reassure markets

Analysts at Commerzbank argue that the Bank of England’s long-standing attempt to “ride out the energy price shock – partly to avoid stifling the real economy too severely” is nearing an inflection point. They note that “the combination of rising inflation, a slight improvement in the labour market, and fairly strong growth figures this year is likely to lead to a change of heart next week,” with “a first interest rate hike… basically fully priced in, and the market [expecting] a further three rises by the middle of next year.” This anticipated policy shift “has supported the pound in recent weeks.”

Commerzbank highlights that inflation dynamics are increasingly driven by energy, with “the four direct energy components in the inflation index now account[ing] for almost one percentage point of the year-on-year total.” Combined with “highly energy-dependent components, the 2% target has in fact already been practically reached.” Yet, as “the less energy-intensive components (primarily services) continue to contribute significantly… inflation has recently drifted further away from the target,” underscoring the BoE’s dilemma.

Against this backdrop, the presentation of Prime Minister Andy Burnham’s new budget is seen as another stabilising factor. Commerzbank cautions that “while this is unlikely to result in major progress (Burnham recently announced that significant changes would only occur following a potential re-election), market participants are likely to be relieved that the presentation of the new budget is proceeding relatively calmly.” Together, the prospect of BoE tightening, improving labour trends, firmer inflation and more resilient UK government bonds are helping to underpin the Pound.

Greene flags stalled wage disinflation, keeping GBP rate cut hopes in check

Greene’s speech score of 7.4/10 matches the historic average on FXS Speechtracker, signaling a consistent tone but with a distinctly hawkish tilt versus recent market expectations for the Pound. Emphasis that wage disinflation has stalled at levels above those consistent with 2% inflation, alongside a belief that policy should proactively lean against second-round inflation risks, reinforces resistance to near-term rate cuts.

Forward-looking pay growth closer to 3.5%, surprising economic resilience, and signs that labor market slack may have peaked all support Greene’s view that the risk of second-round effects is greater than previously thought. For GBP, this combination of stalled wage disinflation and resilient activity is likely to underpin yields and keep downside limited, especially against currencies where wage and demand dynamics look softer.

Technical Analysis: GBP/USD maintains a mildly bearish bias below the 100-day SMA

In the daily chart, GBP/USD maintains a mildly bearish near-term bias as it holds beneath the 100-day simple moving average (SMA). Price is trading above the 20-day Bollinger middle band, suggesting some underlying demand within the broader corrective structure, while the upper Bollinger band marks the top of the current volatility envelope. The Relative Strength Index (14) at 50.6 is neutral, hinting that directional momentum is balanced and that further downside or consolidation is possible while the pair remains capped under the 100-day SMA.

On the topside, initial resistance is located at the 100-day SMA around 1.3390, with the 20-day Bollinger upper band near 1.3420 acting as the next barrier if buyers attempt a rebound. On the downside, immediate support is seen at the 20-day Bollinger middle band at 1.3285, ahead of a more significant structural floor near the lower Bollinger band at roughly 1.3150, where a deeper pullback would be expected to attract demand.

(The technical analysis of this story was written with the help of an AI tool. Know more.)