GBP/USD experiences a decline, approaching the 1.3375 mark during the early hours of Wednesday’s Asian session. UK labour market data indicated a robust job market. Fed Chair Warsh provides no indication regarding the trajectory of interest rates. The GBP/USD pair experiences a decline to approximately 1.3375 during the early Asian trading hours on Wednesday. However, a stronger-than-expected UK labour report may limit the downside for the major pair. Market participants will closely analyse the UK September Consumer Price Index inflation data released later on Wednesday. Data released by the Office for National Statistics on Tuesday indicated a decline in the UK Unemployment Rate to 4.7% for the three months ending in August, a decrease from 4.9% in July. This reading signifies the lowest level observed in over a year, even as the number of vacancies continues to decline for yet another month. The forthcoming UK CPI inflation figures will be scrutinised, as they are expected to play a pivotal role in determining the timing of the Bank of England’s inaugural rate increase in more than three years this November.
Analysts anticipate that the headline CPI will reflect a year-over-year increase of 3.4% in September, whereas the core CPI is expected to demonstrate a rise of 2.7% YoY during the same timeframe. Markets are nearly fully incorporating a 25 basis points rate hike by the BoE at its upcoming meeting on November 5, as indicated by LSEG data. Data released last week indicated that US CPI inflation experienced an acceleration in September. Nonetheless, markets are adjusting their expectations regarding the Federal Reserve’s next move in light of Chair Kevin Warsh’s speech. The Fed Chairman stated that he does not “prejudge” interest-rate decisions, providing no indication of whether the central bank will increase or maintain short-term rates at its forthcoming October policy meeting. Analysts observe that the most recent UK labour market data and wage trends are bolstering the argument for additional tightening by the BoE. It is noted 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’s score of 7.4/10 on FXS Speechtracker aligns with the historical average; however, the focus on stagnant wage disinflation and an increased likelihood of second-round effects indicates a notably hawkish stance. Forward-looking data indicating pay growth approaching 3.5% and wages sustaining levels above those aligned with 2% inflation bolster the argument for the Bank of England to adopt a proactive stance against inflation persistence. Comments indicate that the economy has demonstrated unexpected resilience, and the potential peak in labour market slack further bolsters a hawkish stance, implying that there are limited downside growth risks to restrict policy. For GBP, the interplay of robust economic activity, constrained labour market conditions, and apprehension regarding second-round inflation effects suggests a reluctance for swift easing, thereby endorsing a more pronounced rate trajectory than what markets might have anticipated.
In the daily chart, GBP/USD is positioned just above the upper Bollinger Band, suggesting a potential short-term continuation of the recent rebound. However, it remains constrained by the 100-day simple moving average, which maintains a bearish outlook as long as this resistance is not surpassed. The Relative Strength Index (14) near 56 indicates an enhancement in momentum, implying that buyers are starting to gain ground. However, the closeness of the 100-day SMA above underscores the idea of constrained upside potential unless a more definitive breakout occurs. On the downside, initial support is positioned at the upper Bollinger Band near 1.3365, followed by the middle Bollinger SMA at approximately 1.3255 and the lower band around 1.3150, where demand may re-emerge during deeper pullbacks. On the topside, immediate resistance is defined by the 100-day SMA at 1.3390; a daily close above this level would alleviate the current bearish constraints and pave the way for a more sustained recovery. Conversely, failure to surpass this threshold leaves GBP/USD susceptible to renewed pressure within the Bollinger range.
