British Pound strengthens above 1.3250, traders await US CPI inflation data

The GBP/USD pair gathers strength to around 1.3260 during the early Asian trading hours on Wednesday. Dovish signals from New York Federal Reserve (Fed) President John Williams weigh on the US Dollar (USD) against the British Pound (GBP). All eyes will be on the US September Consumer Price Index (CPI) inflation data later on Wednesday.

Fed’s Williams on Tuesday reaffirmed his view that the US central bank may need to ‌raise interest rates once more this year in its bid to lower inflation. "I haven't changed my view that it may be appropriate to have one more rate hike in 2026, said Williams. And when it comes to 2027, "I don't think at this time I have any reason to believe that we would need to do more," he added.

Markets are now pricing in nearly a 77.3% probability that the Fed will hold interest rates steady at the October 27-28 meeting, but are pricing in an 87.8% chance of an increase at the final meeting of the year in December, according to the CME FedWatch tool.

Bank of England (BoE) Governor Andrew Bailey said on Tuesday that companies in the UK are focusing intensely on containing their costs amid the surge in energy prices caused ‌by the Iran war. Bailey reiterated that pressure on broader inflation in the UK from the energy shock had so far been subdued. Traders are pricing the chance of a quarter-point rate hike by the UK central bank next month as a near certainty.

BoE path and UK budget seen supporting Pound despite policy risks

Analysts at ING argue that the policy backdrop remains broadly supportive for GBP, even if current market pricing looks stretched. They “still think BoE rate expectations are too hawkish for 2027 (100bp by July),” but concede that “one or two hikes are looking increasingly likely,” with any “dovish shift” in policy likely to “have to wait until well into 2027, underpinning GBP strength.”

On the fiscal side, ING flags the “UK budget on 28 October” as “a potential risk for sterling, as markets are pricing in little fiscal concern.” However, they note that Chancellor John Healey and Prime Minister Andy Burnham “have appeared mindful of market sensitivities,” and while the budget “will be closely scrutinised,” ING says they “do not currently expect it to trigger significant bond volatility or leave a lasting negative mark on GBP.”

Williams leans dovish on 2027 rates but Fed tone stays firmly hawkish

Fed’s Williams delivered a notably softer message, with the FXS Speechtracker score at 3.4/10, well below the 5.8/10 historical average, signaling a more dovish tilt relative to the established baseline. The explicit view that there is no need for a rate hike in 2027, alongside confidence that inflation will slow “quite a bit” toward the 2% target next year, reinforces expectations for a prolonged pause and ultimately supports a weaker Dollar bias at the margin. However, the emphasis on inflation still moving toward target rather than being fully achieved keeps the broader policy stance from turning outright dovish.

The FXS Fed Sentiment Index fell by 3.09 points to 133.86, indicating a meaningful pullback in perceived hawkishness following the speech. Despite this decline, the index remains well above the neutral 100 level, showing that overall Fed communication is still in hawkish territory even as Williams’ remarks mark a softer tone compared to the established baseline 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 sits right on the 20-period Bollinger simple moving average, while capped below the 100-day simple moving average (SMA) and the upper Bollinger band, which keeps the near-term bias bearish. The Relative Strength Index (RSI) at 44 suggests subdued upside momentum, hinting that recent rebounds lack conviction as price holds beneath the broader trend indicator.

On the topside, immediate resistance is clustered between the upper Bollinger band at 1.3375 and the 100-day SMA at 1.3395, where sellers are likely to re-emerge on any bounce. On the downside, initial support is seen at the lower Bollinger band near 1.3150, with a daily close below this zone likely to extend the slide toward lower levels as bearish pressure persists.

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