Can the British Pound Recover as It Slips Below 1.3400 Ahead of UK CPI Inflation Data?

• Selling pressure pulls GBP/USD towards 1.3375 in early Asian trading on Wednesday.
• Resilience in the UK jobs market is evident in the latest labour data.
• No guidance on the rate trajectory emerges from Fed Chair Warsh’s remarks.

GBP/USD comes under pressure towards 1.3375 in Wednesday’s early Asian trade, although the UK’s stronger-than-expected employment report could limit losses in the major currency pair. Attention now turns to September’s UK Consumer Price Index (CPI) inflation figures, due later on Wednesday, for further trading cues.

Despite another monthly decline in vacancies, the UK Unemployment Rate reached its lowest level in more than a year. Figures published on Tuesday by the Office for National Statistics (ONS) put the rate at 4.7 for the three months to August, compared with 4.9% in July.

November could bring the Bank of England’s (BoE) first rate increase in over three years, with the forthcoming UK CPI report likely to cement that outcome. The release will therefore draw close scrutiny. Economists forecast headline CPI growth of 3.4% YoY for September and a core CPI increase of 2.7% YoY for the same month.

According to LSEG data, a BoE rate increase of 25 basis points (bps) at the next meeting on 5 November is almost fully reflected in market pricing.

Investors are reassessing the Federal Reserve’s (Fed) next policy step after Chair Kevin Warsh’s speech, even as figures published last week showed an acceleration in US CPI inflation during September.

Whether the central bank will raise short-term rates or leave them unchanged at its October policy meeting remains unclear. The Fed Chairman offered no advance indication, saying he does not "prejudge" interest-rate decisions.

Can UK jobs data support the Pound as BoE rate-hike expectations strengthen?

The case for additional BoE tightening is gaining support from the latest UK employment figures and wage trends, according to analysts at Societe Generale. In their assessment, "UK average earnings growth also picked up ever so fractionally in the private sector and will strengthen the hand of the MPC hawks at the BoE who back higher rates now to avoid having to deal with second round effects later."

Societe Generale challenge the view among some observers that labour market conditions are easing, stressing that "the logic that the labour market is loosening has been driven by the fall in vacancies, down 5.1% yoy, but both real and nominal pay have been stable." They believe the combination of these conditions and the energy backdrop gives the central bank little scope to hold off: "With oil prices climbing to the highest levels since May, there is little that will stop the BoE from raising rates in November to 4%."

Persistent wage pressures remain evident despite fewer vacancies, the analysts say, citing ONS Vacancy Survey feedback that "smaller firms may not be recruiting because of increases in labour cost,". Turning to markets, Societe Generale note that "GBP/G10 bid after surprise decrease in unemployment rate to 15-month low cements case for BoE November rate increase," as an improved macroeconomic backdrop and policy outlook start to influence positioning. They explain: "the run-up to the Autumn budget has in previous years typically been accompanied by investors liquidating GBP/G10 but the stronger macro backdrop and BoE outlook are giving the pound a slight edge over the dollar and the euro."

Recent bearish positioning may also be ripe for a reversal, judging by positioning data. Societe Generale contend that "the price action suggest the accumulation of CFTC short positions has gone too far. The pound could be in demand on short covering and if bullish year-end seasonals re-establish themselves after the Budget next week." They also note that "UK CPI is published tomorrow," with the figures potentially influencing expectations for the BoE’s November decision and the Pound’s path towards year-end.

Does Greene’s warning on stalled wage disinflation reinforce the BoE’s hawkish bias?

A distinctly hawkish emphasis emerges from Greene’s concerns about stalled wage disinflation and rising risks of second-round effects, even though her FXS Speechtracker score of 7.4/10 is in line with the historical average. With forward-looking indicators suggesting pay growth closer to 3.5% and wages still above levels compatible with 2% inflation, the argument for the Bank of England to act proactively against persistent inflation is strengthened.

A hawkish stance also finds support in remarks that economic resilience has exceeded expectations and labour market slack may already have peaked. This implies that downside risks to growth offer limited constraints on policy. For GBP, resilient activity, tight labour conditions and worries about second-round inflation effects together weigh against swift easing, favouring a firmer interest-rate trajectory than markets may have allowed for.

Technical Analysis: Can GBP/USD clear its overhead barrier?

The daily chart suggests that GBP/USD’s latest rebound could extend in the near term, with the pair trading just above the upper Bollinger Band. However, the 100-day simple moving average (SMA) continues to restrict gains, leaving the broader outlook bearish until that hurdle is reclaimed. Momentum is improving, as indicated by the Relative Strength Index (14) around 56, and buyers appear to be gaining ground. Even so, the nearby 100-day SMA suggests further gains may be limited without a more decisive breakout.

Immediate resistance stands at 1.3390, where the 100-day SMA sits. A daily close above it would reduce the prevailing bearish constraint and create room for a more durable recovery; failure to clear it would leave GBP/USD exposed to fresh selling towards the Bollinger range. Initial support lies around 1.3365 at the upper Bollinger Band, ahead of the middle Bollinger SMA near 1.3255 and the lower band around 1.3150. Deeper declines towards these levels could attract renewed demand.

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