GBP/USD: hot UK inflation cements BoE hike bets, but budget and Fed cap gains near 1.3400

GBP/USD trades near 1.3379 after closing the week broadly flat, having briefly touched the 1.3400 area following stronger UK data [1][2][3]. Money markets assign a 98% probability that the Bank of England will raise its benchmark rate by 25 basis points to 4.0% at its November 5 meeting, according to LSEG pricing cited by FXStreet [1][4]. Sterling has also pushed EUR/GBP to a 17-month low near 0.8360, reflecting both UK resilience and euro-area political concerns [5]. Even so, gains against the dollar have stalled as broad dollar demand and geopolitical risk have offered the greenback some support [2][6].

UK headline CPI accelerated to 3.5% year-on-year in September, an 11-month high, from 3.1% in August and above the 3.4% consensus, driven largely by higher motor fuel prices, the Office for National Statistics reported [1][4]. Core CPI rose to 2.8% and services inflation to 3.7%, both topping forecasts [7][4]. Labour data showed employment up 102,000 in the three months to August, unemployment falling to 4.7%, and regular earnings growth of 3.7%, reinforcing the case for tightening [8][9]. UK Composite PMI rose to 53.1 in October, its fastest pace since February, with S&P Global's Chris Williamson noting renewed hiring [3]. However, September retail sales fell 0.4% month-on-month, missing expectations and complicating the rate-hike picture [10]. Brown Brothers Harriman's Elias Haddad argues the swaps curve, which implies 113 basis points of BoE tightening over twelve months, is overpricing the path given below-capacity growth, weak real wages and a policy rate near the top of the BoE's neutral range, with fiscal policy likely to tighten further after Chancellor John Healey's October 28 budget [11][7][6]. BoE policymaker Megan Greene has flagged stalled wage disinflation as a risk of second-round price effects [1]. UK national debt surpassed £3 trillion for the first time in September, adding strain ahead of the budget [4]. Separately, approval of the Jackdaw gas field could, over time, support UK energy security [12].

GBP/USD closed at 1.3379, inside a range the chart rule classifies as sideways, sitting above the 50-day moving average at 1.3340 but below the 200-day average at 1.3419 [13]. The pair is up 0.5% over one week and 1.0% over four weeks, with RSI at 58 suggesting room before overbought conditions [13]. Nearest support sits at 1.3342, then 1.3322, while nearest resistance is at 1.3558 and 1.3676, the latter matching the 52-week high from August 21 [13]. The 52-week low of 1.3138 was set on October 14 [13]. On the weekly chart, the close sits below both the 10-week average of 1.3405 and the 40-week average of 1.3424 [13]. The US dollar index closed at 101.75, in an established uptrend above its 50- and 200-day averages, which helps explain cable's difficulty clearing 1.3400 despite UK-side strength [13].

A daily GBP/USD close beyond 1.3419, the 200-day moving average, or below the 1.3342 support would shift the near-term picture described by the price data [13]. On the fundamental side, a softer-than-expected budget response from gilt markets, or signs the BoE is inclined to slow its pace after November, as BBH's Elias Haddad argues the swaps curve overstates, would reduce the rate-path support sterling has drawn on [11][7][6]. Conversely, further upside surprises in UK wage or services inflation would reinforce hawkish BoE pricing [7][4]. Developments at the Federal Reserve, including any shift in Chair Kevin Warsh's guidance, would also affect the dollar side of the pair [1].

UK Autumn Forecast Statement and Annual Budget Release, October 28 [14]
US Federal Reserve rate decision, statement and press conference, October 28 [14]
European Central Bank rate decision and press conference, October 29 [14]
Bank of Japan policy decision and press conference, October 30 [14]
US Core PCE Price Index and Advance GDP, October 29 [14]
Bank of England rate decision expected November 5, outside this week's calendar window [1][4]

1. FXStreet: British Pound holds gains above 1.3400 as hot CPI data fuels BoE rate hike bets
2. FXStreet: British Pound stalls below 1.3400 despite hot UK CPI and BoE hike bets
3. FXStreet: UK S&P Global Composite PMI improves to 53.1 in October vs. 51.8 expected
4. CNBC (economy): UK inflation jumps to 3.5% — cementing rate hike expectations
5. FXStreet: Euro hits fresh 17-month lows against British Pound after Eurozone, UK PMIs
6. FXStreet: British Pound: BoE tightening expectations questioned – BBH
7. FXStreet: British Pound: Inflation surge backs November BoE hike – BBH
8. FXStreet: British Pound advances against Euro as UK jobs data strengthens BoE hike bets
9. investingLive: UK unemployment rate falls to 4.7% as jobs rebound, keeping BOE rate hike bets intact
10. investingLive: UK retail sales fall more than expected in September, complicating BOE rate hike outlook
11. FXStreet: British Pound: BoE hike prospects underpin resilience – MUFG
12. OilPrice.com: UK Approves Jackdaw Gas Field as Energy Crisis Deepens
13. Daily prices: EODHD and Yahoo Finance; trend, levels and RSI computed by Praevis
14. Praevis economic calendar