- GBP/USD price analysis remains subdued after easing UK CPI data.
- The pound remains vulnerable amid the Fed’s cautiousness and the BoE’s higher odds of a rate cut.
- Focus remains on the UK Autumn budget as fiscal concerns mount.
The GBP/USD price analysis reveals a subdued picture on Wednesday despite UK inflation easing in line with expectations. The focus of traders shifted to the risk of Bank of England policy and US macroeconomic data.
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The recent ONS report shows the headline CPI easing to 3.6% YoY in October, down from September’s 3.8%, matching the market estimates. Core CPI slipped to 3.4% while services inflation cooled to 4.5% from earlier 4.7%. Inflation remains a concern for the central bank, despite a gradual disinflationary trend, which keeps policy expectations intact.
The initial reaction of GBP/USD was muted, edging lower to 1.3130, extending its decline for a fourth consecutive session. The moderation in inflation data, combined with weaker labor data and GDP growth, is a result of rising fiscal uncertainty. This fuels the expectations of a December rate cut by the Bank of England. With the UK Autumn Budget due next week, traders are cautious about further pressure on gilt yields and the pound, as it is reportedly that the government could abandon its plan to hike income tax. This could widen the fiscal gap to £30 bn. Markets remain unconvinced that Rachel Reeves can keep a credible fiscal discipline without deeper cuts.
Across the Atlantic, the US dollar remains firm as hopes for a December Fed rate cut fade, supporting US yields. The CME FedWatch Tool now shows a 49% probability of a 25-basis-point rate cut, down from 67% the previous week. The recent Fedspeak triggered a cautious tone, as Richmond Fed President Barkin noted that inflation is not re-accelerating but remains off track from the 2% target, underscoring the Fed’s uncertainty. Mixed job data, like 232k initial jobless claims and a modest reduction in jobs in the ADP data, adds complexity to the delayed NFP data for September.
GBP/USD Key Events Ahead
The PMI data is expected from both countries on Friday. The figures are unlikely to shift the narrative, as projected numbers are likely to remain the same as those from last month. Meanwhile, Thursday’s US NFP data could generate volatility in the markets.
The combination of soft UK data and a resilient dollar makes the GBP/USD vulnerable, with the UK fiscal budget taking center stage next week.
GBP/USD Technical Price Analysis: Weak Bullish Pennant Pattern
The GBP/USD price wobbles under the key MAs, while the RSI remains flat under the 50.0 level. This suggests a technically vulnerable pound, awaiting a bearish breakout. However, the price has formed a bullish pennant pattern and is staying within the pattern’s trendlines.
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If the pattern works, the price could jump above the cluster of key MAs, breaking the upper trendline to test the significant level at 1.3200. On the other hand, if the lower trendline breaks, the pair could continue its bearish momentum, potentially leading to 1.3100, followed by 1.3050.
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