British Pound slips below 1.3400 as markets await UK CPI inflation data

• GBP/USD slips towards 1.3375 as Wednesday’s Asian session gets under way.
• UK employment figures point to continued labour market resilience.
• Fed Chair Warsh offers no indication of the future interest rate path.

A better-than-expected UK labour market report may limit losses in GBP/USD, although the pair is trading lower at around 1.3375 early in Wednesday’s Asian session. Attention now turns to the UK’s September Consumer Price Index (CPI) inflation figures, due later on Wednesday, for further direction.

The UK Unemployment Rate dropped from 4.9% in July to 4.7 in the three months to August, according to figures published on Tuesday by the Office for National Statistics (ONS). Despite another monthly decline in vacancies, the reading was the lowest in more than a year.

With the Bank of England (BoE) potentially poised to deliver its first interest rate increase in over three years in November, the forthcoming UK CPI release will be a key focus and is likely to help cement that decision. For September, economists forecast headline CPI growth of 3.4% YoY and a core CPI increase of 2.7% YoY.

LSEG data indicate that markets have almost fully priced in a 25 basis points (bps) increase at the BoE’s next meeting on 5 November.

September brought an acceleration in US CPI inflation, figures published last week showed. Markets are nevertheless reassessing the Federal Reserve’s (Fed) next policy step after a speech by Chair Kevin Warsh.

Saying that he does not "prejudge" interest rate decisions, the Fed Chairman offered no signal as to whether the central bank would raise short-term rates or leave them unchanged at its forthcoming October policy meeting.

Sterling draws support as UK jobs figures strengthen BoE rate rise expectations

The case for additional BoE tightening has been strengthened by 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 counter suggestions from some observers that labour market conditions are easing, noting 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." Alongside the energy backdrop, they believe this gives the central bank little latitude to hold rates: "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%."

Evidence from the ONS Vacancy Survey also points to continuing wage pressures despite fewer vacancies, the analysts say, highlighting 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 positioning begins to respond to the firmer economic backdrop and policy outlook. They explain that "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 vulnerable to a reversal, the data suggest. In Societe Generale’s view, "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." The analysts also note that "UK CPI is published tomorrow," with the figures potentially influencing expectations for the November BoE meeting and sterling’s course towards year-end.

Greene maintains hawkish BoE tone as wage disinflation stalls

Pay growth nearer 3.5% in forward-looking indicators, together with wages still above rates compatible with 2% inflation, strengthens the argument for the Bank of England to act pre-emptively against persistent inflation. Although Greene’s FXS Speechtracker score of 7.4/10 is in line with the historical average, the focus on stalled wage disinflation and heightened risks of second-round effects gives the remarks a distinctly hawkish slant.

A hawkish position is further supported by observations that economic resilience has exceeded expectations and labour market slack may have reached its peak. These suggest that downside growth risks offer limited constraints on policy. For GBP, resilient activity and tight labour conditions, coupled with concerns about second-round inflation effects, weigh against swift easing and favour a firmer interest rate path than markets may previously have priced in.

Technical Analysis: GBP/USD Faces a Ceiling at the 100-Day SMA

The 100-day simple moving average (SMA) continues to cap GBP/USD on the daily chart, preserving the broader bearish bias until that hurdle is cleared. At the same time, the pair sits just above the upper Bollinger Band, signalling that the latest rebound could extend in the short term. With the Relative Strength Index (14) close to 56, momentum is improving and buyers appear to be gaining ground. However, the nearby 100-day SMA suggests that further upside may be limited without a more decisive breakout.

The upper Bollinger Band, around 1.3365, provides the first downside support. Below it lie the middle Bollinger SMA near 1.3255 and the lower band around 1.3150, where deeper pullbacks could attract fresh demand. Immediate resistance stands at 1.3390, the level of the 100-day SMA. A daily close above that barrier would loosen the current bearish constraint and allow a more durable recovery; failure to clear it would leave GBP/USD exposed to renewed selling pressure back within the Bollinger range.

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