British Pound weakens to near 1.3300 ahead of UK budget, Fed rate decision

• GBP/USD extends its downside to near 1.3300 in Wednesday’s Asian session.
• UK Finance Minister will deliver his first budget on Wednesday against a backdrop of rising global borrowing costs.
• The Fed is likely to leave its policy interest rate ‌unchanged at its October meeting.

The GBP/USD pair extends the decline to around 1.3300 during the Asian trading hours on Wednesday. The British Pound (GBP) softens against the US Dollar (USD) amid cautious mood ahead of UK Budget and Federal Reserve (Fed) interest rate decision on Wednesday.

UK Finance Minister John Healey is set to present his first budget later in the day, facing mounting pressure to deliver measures that can ease the cost-of-living burden on households while providing support to businesses. Nonetheless, his options are limited by high government borrowing costs and the big tax increases implemented by his predecessor, Rachel Reeves.

“It’s hard to be immune in an environment where global bond yields are going higher, but among major developed markets, the UK is looking like one of the cleanest dirty shirts out there,” said Guillermo Felices, PGIM’s global investment strategist.

The Fed is widely expected to leave its policy interest rate ‌unchanged at the current target range of 3.75% to 4.0%, while signalling the probability of any December move. Traders will take more cues from Fed Chair Kevin Warsh’s speech for more clues on US interest rate outlook. Any hawkish remarks from Fed officials could lift the Greenback and act as a headwind for the major pair.

Markets are pricing in nearly 92.8% chance that the Fed will keep rates on hold at its October policy meeting, according to the CME FedWatch tool. The likelihood of US rate hike in December stands at 84.4%.

Pound softens as markets eye UK budget and key GBP/USD supports

Strategists at Scotiabank note that “caution ahead of Wednesday’s UK budget accounts for some of the GBP’s softness against the USD,” with “overnight GBPUSD vols… firmer, reflecting caution ahead of Chancellor Healey’s set-piece delivery tomorrow.” They add that “a budget that maintains fiscal credibility will likely be GBP-neutral at worst.” From a technical perspective, Scotiabank describes the outlook as “neutral/bearish,” highlighting that “the GBP retains a soft undertone versus the USD, driving spot below minor support at 1.3350/55.” This “leaves the October 19th low at 1.3300 exposed and lifts the risk of the pound easing back to the 1.3250/75 range to retrace a little more of its mid-month rebound,” although the bank expects that “modest GBP losses should entice support from bargain-hunters.”

Greene flags stalled wage disinflation, keeping GBP rate-cut hopes in check

BoE’s Greene scores 7.4/10 on FXS Speechtracker, exactly in line with the historic average, but the emphasis on stalled wage disinflation and greater risk of second-round effects marks a hawkish tilt at the margin. Remarks that wage disinflation has stalled above levels consistent with 2% inflation, alongside an economy showing “surprising resilience” and labor market slack potentially having peaked, argue against an imminent easing cycle and support GBP on the crosses.

By stressing the need to “proactively lean” against second-round inflation risks even as forward-looking data point to pay growth closer to 3.5%, Greene effectively downplays the comfort from moderating wage indicators. For FX, this combination of resilience and sticky wage dynamics suggests the Bank of England will be slower to cut than some peers, limiting downside for GBP and keeping rate differentials a modest tailwind.

Technical Analysis: GBP/USD maintains a bearish tone below the 100-day SMA

In the daily chart, GBP/USD holds below the 100-day simple moving average (SMA), which keeps the broader tone mildly bearish despite a modest recovery from recent lows. Price is consolidating just above the 20-day Bollinger SMA, suggesting nearby underlying demand, while the Relative Strength Index (14) around 47 stays below the 50 line, hinting that bullish momentum remains tentative.

On the topside, initial resistance is located at the 100-day SMA around 1.3390, with a further barrier at the upper Bollinger Band near 1.3415, where sellers may look to reassert control if the pair extends higher. On the downside, immediate support is seen at the mid-Bollinger band around 1.3285, followed by a more substantial cushion at the lower Bollinger Band near 1.3150, where a break would likely reinforce the prevailing bearish bias.

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