GBP edges higher to near 1.3250, renewed UK fiscal concerns in focus

• GBP/USD gains traction to near 1.3240 in Friday’s early Asian session.
• Fed’s Waller said no need for rate hikes to come at consecutive meetings.
• UK faces a challenging fiscal picture, undermining the British Pound.

The GBP/USD pair gathers strength to around 1.3240 during the early Asian trading hours on Friday. The US Dollar (USD) softens against the British Pound (GBP) following comments from Federal Reserve (Fed) Governor Christopher Waller. Traders will keep an eye on the Michigan Consumer Sentiment Index data for October later on Friday.

Fed Governor Christopher Waller said on Thursday that additional rate hikes will likely be needed to lower inflation to the Fed’s 2% target, but added there was “flexibility” about ‌the pace of increases and left the door open for a pause at the upcoming October meeting.

Markets are now pricing in nearly a 17.7% chance that the US central bank will lift the interest rate at least 25 basis points (bps) at the policy meeting later this month, down from 38% a week ago, the CME FedWatch tool showed. Markets are pricing in an 83% chance of a hike at the Fed’s December meeting.

However, UK fiscal concerns could weigh on the Cable in the near term. After the UK’s long-term borrowing costs reached their highest level since the 1990s last week, the focus remains firmly on Finance Minister John Healey’s first budget on October 28.

Earlier this week, the UK chancellor said the country’s largest lenders are facing a “challenging fiscal picture” but stopped short of guiding whether he will hit banks with higher taxes in the Budget later this month.

GBP range bias holds as UOB flags limited downside

Strategists at UOB Group note that their previous constructive stance on GBP was quickly undermined by the latest price action. Following Tuesday’s move, they had highlighted on 07 Oct, with spot at 1.3265, that “there has been a slight increase in upward momentum, and GBP may edge higher toward 1.3315.” However, that view “was invalidated quickly as GBP fell below our ‘strong support’ at 1.3200 with a low of 1.3194.”

In their updated 1–3 week view, UOB now observes that “there has been a slight increase in downward momentum, but it is insufficient to indicate a sustained decline.” From here, they judge that “GBP could edge lower, but any decline is likely to be part of a lower range of 1.3140/1.3280.” In their words, “GBP is unlikely to break clearly below 1.3140,” reinforcing a broadly range-bound bias despite the recent setback.

Fed’s Musalem flags need for further tightening as inflation stays elevated

Fed’s Musalem delivers a firmly hawkish message, with a 7.3/10 FXS Speechtracker score essentially in line with the 7.2/10 historical average, underscoring continuity rather than a tonal shift. The emphasis that “more monetary policy firming will be required” to return inflation to 2% while the economy and job market remain “pretty strong” and “balanced” reinforces a narrative of additional rate hikes rather than cuts, even as Musalem stresses going into meetings with an open mind. Musalem’s comments on persistent demand pressures, anchored market inflation expectations, and structurally higher real yields driven by AI investment and fiscal deficits point to a higher-for-longer rate environment that should support the Dollar and keep risk assets sensitive to policy repricing.

The FXS Fed Sentiment Index slipped by 0.25 points to 138.33, indicating a modest pullback in perceived hawkishness but still firmly in hawkish territory well above the neutral 100 mark. This configuration—slightly lower index reading yet elevated level—suggests that while the incremental surprise versus prior Fed communication is limited, the policy backdrop remains clearly restrictive, consistent with Musalem’s call for further firming and the steady tone captured by the FXS Speechtracker.

Technical Analysis: Bearish outlook of GBP/USD remains intact below the 100-day SMA

In the daily chart, GBP/USD keeps a bearish near-term tone as spot holds beneath the 20-day simple moving average (SMA) from the Bollinger Bands and well below the 100-day SMA. Price is also capped by the upper Bollinger band, while the Relative Strength Index (14) at 39 leans toward modestly bearish momentum without reaching oversold territory, suggesting sellers remain in control but lack extreme conviction.

On the topside, initial resistance emerges at the Bollinger middle band SMA near 1.3295, ahead of the 100-day SMA at 1.3402 and the upper Bollinger band at 1.3470. On the downside, the lower Bollinger band at 1.3115 offers the next key support area, and a decisive break beneath this floor would open the way to a deeper retreat in the pair.

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