British Pound edges lower below 1.3400 ahead of UK CPI inflation release

• GBP/USD loses traction to near 1.3375 in Wednesday’s early Asian session.
• UK labour market data showed a resilient job market.
• Fed Chair Warsh gives no preview of the rate path.

The GBP/USD pair declines to around 1.3375 during the early Asian trading hours on Wednesday. However, a stronger-than-expected UK labor report might cap the downside for the major pair. Traders will take more cues from the UK September Consumer Price Index (CPI) inflation data later on Wednesday.

Data released by the Office for National Statistics (ONS) on Tuesday showed that the UK Unemployment Rate fell to 4.7 in the three months to August, down from 4.9% in July. This reading marks the lowest level in more than a year despite the number of vacancies sliding for another month.

The upcoming UK CPI inflation will be closely watched as it is likely to help seal the deal on the first rate hike from the Bank of England (BoE) in over three years in November. Economists expect the headline CPI to show a rise of 3.4% YoY in September, while the core CPI is projected to show an increase of 2.7% YoY during the same period.

Markets are almost fully pricing in a 25 basis points (bps) rate hike by the BoE at its next meeting on November 5, according to LSEG data.

Data released last week revealed that US CPI inflation accelerated in September. Nonetheless, markets calibrate the Federal Reserve’s (Fed) next move following Chair Kevin Warsh’s speech.

The Fed Chairman said that he does not “prejudge” interest-rate decisions, giving no preview of whether the central bank will hike or hold short-term rates steady at its upcoming October policy meeting.

Pound gains support as UK labour data bolster BoE hike expectations

Analysts at Societe Generale note that the latest UK labour market data and pay dynamics are reinforcing the case for further tightening by the BoE. They point out that “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.”

While some observers have argued that the labour market is loosening, Societe Generale stress 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.” In their view, this, combined with the energy backdrop, leaves the central bank with little room to pause: “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%.”

They highlight feedback from the ONS Vacancy Survey suggesting that “smaller firms may not be recruiting because of increases in labour cost,” underlining persistent wage pressures despite the drop in vacancies. On the market side, Societe Generale observe that “GBP/G10 bid after surprise decrease in unemployment rate to 15-month low cements case for BoE November rate increase,” with the stronger macro backdrop and policy outlook beginning to shift positioning. As they put it, “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.”

Positioning data also suggest scope for a reversal of recent bearishness. Societe Generale argue 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 add that “UK CPI is published tomorrow,” a release that could further shape expectations for the BoE’s November meeting and the trajectory of the Pound into year-end.

Greene flags stalled wage disinflation, keeping BoE hawkish bias intact

Greene’s 7.4/10 score on FXS Speechtracker matches the historic average, but the emphasis on stalled wage disinflation and greater risk of second-round effects marks a distinctly hawkish tilt. Forward-looking data pointing to pay growth nearer 3.5% and wages remaining above levels consistent with 2% inflation reinforce the case for the Bank of England to lean proactively against inflation persistence.

Comments that the economy has shown surprising resilience and that labor market slack may have peaked further support a hawkish stance, suggesting limited downside growth risks to constrain policy. For GBP, the combination of resilient activity, tight labor conditions, and concern over second-round inflation effects argues against rapid easing and supports a firmer rate path than markets may have been pricing.

Technical Analysis: GBP/USD

In the daily chart, GBP/USD holds just above the upper Bollinger Band, hinting at a short-term extension of the latest rebound, but remains capped by the 100-day simple moving average (SMA), which keeps the broader bias bearish while that barrier is not reclaimed. The Relative Strength Index (14) near 56 shows improving momentum, suggesting buyers are gaining traction, yet the proximity of the 100-day SMA overhead reinforces the notion of limited upside unless a clearer breakout develops.

On the downside, initial support is aligned with the upper Bollinger Band at around 1.3365, followed by the middle Bollinger SMA near 1.3255 and the lower band around 1.3150, where demand could re-emerge on deeper pullbacks. On the topside, immediate resistance is defined by the 100-day SMA at 1.3390; a daily close above this level would ease the current bearish cap and open the way for a more sustained recovery, while failure to overcome it leaves GBP/USD vulnerable to renewed pressure back into the Bollinger range.

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