British Pound turns upside down against USD as Fed’s Waller warns of bigger rate hike

The British Pound (GBP) gives back its early gains and turns negative at around 1.3430 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair drops as the US Dollar recovers quickly, following hawkish remarks from Federal Reserve (Fed) Governor Christopher Waller.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, turns almost flat at around 101.65 after clawing back early losses.

During the European session, Fed’s Waller said that further interest rate hikes are needed as inflationary pressures are high and labor market conditions are solid. Waller has also warned ahead of the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT, that a “half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.”

Waller flags risk of larger december hike as inflation worries intensify

Fed’s Waller delivered a distinctly more hawkish tone, with an FXS Speechtracker score of 8.6/10 versus a historical average of 7.2/10, underscoring heightened concern about persistent inflation. The explicit openness to a half-point FED rate hike in December if core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a strong bias toward further tightening and a low tolerance for upside inflation surprises. Emphasis on the breadth of price increases, looming producer price pressures, and potentially more persistent energy shocks, despite a solid labor market and still-solid GDP growth, reinforces a narrative of inflation risks dominating the policy reaction function.

The FXS Fed Sentiment Index rose by 1.58 points to 143.91, keeping the gauge deeply in hawkish territory and confirming that this speech marks a meaningful hawkish shift relative to the established baseline. The combination of a higher FXS Fed Sentiment Index level and an above-average FXS Speechtracker score suggests markets should price a higher probability of additional FED tightening, with upside risk to the Dollar as rate expectations are recalibrated.

MUFG/BTMU point out that "October headline and core CPI are expected to slow to 0.3%mom and 0.2%mom, respectively." They caution that "a downside inflation surprise would challenge rate hike expectations and could weigh on the dollar," potentially tempering the recent build-up in Fed tightening bets.

The US Dollar has broadly remained under pressure in the past few weeks, as lower oil prices due to increased hopes of US-Iran deal anchored global inflation expectations.

On the British Pound front, Bank of England (BoE) Deputy Governor Clare Lombardelli has kept the hopes of more interest rate hikes alive. “Wouldn’t rule out rate hike possibility in December,” BoE’s Lombardelli said in an interview with Guardian.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3433. The pair holds a mild bullish bias as it stays above the 20-day Exponential Moving Average (EMA) at roughly 1.3378 and has reclaimed the 50.0% Fibonacci retracement of the latest downswing at around 1.3407. The Relative Strength Index (14) near 56 suggests firm but not overextended upside momentum, hinting that buyers retain control while price action holds above these underlying supports.

On the topside, immediate resistance emerges at the 61.8% Fibonacci retracement near 1.3470, with the 78.6% retracement around 1.3560 forming a higher barrier if bulls extend the advance. On the downside, initial support is seen at the 50.0% retracement at 1.3407, followed by the 20-day EMA near 1.3378; a deeper pullback would expose the 38.2% level around 1.3343 and then the 23.6% retracement at 1.3265, ahead of the structural floor near 1.3138.

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

Lombardelli flags low-gear economy and keeps December hike in play

Lombardelli’s 6/10 FXS Speechtracker score sits notably below the 7.2/10 historic average, pointing to a slightly less confident tone as the focus shifts to a “low-gear economy” and a cooling labour market. The observation of a “real fall-off in hiring” but limited redundancies underscores a softening demand backdrop without acute stress, which tempers immediate urgency for aggressive tightening.

However, explicitly “not ruling out” a December rate hike keeps a mild hawkish bias alive, as policy optionality is clearly preserved despite data uncertainty. For GBP, this mix of weaker growth signals and an open door to further tightening suggests a nuanced stance: short-term upside may be capped by growth concerns, but downside is cushioned by the ongoing possibility of another hike.