Forex News

• GBP/USD struggles below 1.3400 as geopolitical risks support the US Dollar.
• UK inflation accelerates to 3.5%, driven by higher energy prices.
• November BoE hike odds reach 95% ahead of crucial Autumn Budget.

The Pound Sterling (GBP) struggles to extend its gains against the US Dollar (USD) on Wednesday, even as inflation in the United Kingdom cements the case for a Bank of England (BoE) rate hike at the next meeting and the Greenback recovers amid heightened geopolitical tensions. At the time of writing, GBP/USD hovers around 1.3400, broadly unchanged.

Sterling struggles as geopolitical tensions revive Dollar demand despite rising UK inflation

US economic data remains scarce on Wednesday, but market participants are getting some clues about US equities, which trade in the green, boosted by a surge in technology stocks sparked by AI hype. US Treasury yields hold firm, with the US 10-year T-note yield at 5.10%.

Geopolitics are also boosting the Greenback. Even though news suggested a possible resolution of the US-Iran conflict on Tuesday, reports indicated that the Pakistani Army Chief met with Iranian officials in Tehran, where he presented a “compromise proposal,” while N12 news reported that he delivered the US a “final warning.” This means that if Iran does not agree to a peace deal, attacks could resume.

In the UK, the Consumer Price Index (CPI) rose from 3.1% to 3.5% YoY in September, according to the Office for National Statistics (ONS), driven mainly by a surge in energy prices sparked by the Middle East conflict.

The data comes after the latest jobs report in the UK showed a modest rise in wages alongside other signs of labor market resilience.

Given the backdrop, traders are pricing in a 95% chance of a quarter-percentage-point rate hike by the Bank of England at its November 5 meeting.

Attention now turns to British Finance Minister John Healey's first budget, due next week. Earlier this month, Healey said his budget would bolster UK's resilience to the Iran war’s energy-price shock and give the country "a bit of breathing space."

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3387, holding a bearish near-term bias as it remains capped beneath the latest triple simple moving average at 1.3409 and the downward resistance trend line break at 1.3405. The pair trades under a broader cluster of structural barriers defined by the upward support trend line breaks at 1.3620 and 1.3805, while the Relative Strength Index (14) around 57 suggests recovering but still moderate bullish momentum that has yet to overcome the overhead supply.

On the topside, initial resistance is seen at the downward resistance trend line break near 1.3405, followed closely by the triple simple moving average at 1.3409; a daily close above this band would open the way toward the next resistance zone at the upward trend line break around 1.3620, ahead of 1.3805. On the downside, the former downward resistance trend line break at 1.3271 now acts as immediate support, and a move back below this level would reinforce the broader bearish tone and expose lower levels in the coming sessions.

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

James Smith at ING highlights that UK inflation pressures remain concentrated in energy, with food and services inflation surprisingly subdued. Headline inflation printed 3.5% in September and is expected to peak near 4% in winter, but measures of energy-intensive and core services inflation show little sign of broadening second-round effects from the Iran War-related energy shock.

Energy-driven but limited pass-through

"Seven months on from the start of the Iran War, and there’s still no sign that the UK’s inflation shock is broadening out beyond energy. Second-round effects are so far non-existent."

"Headline inflation was admittedly a tad above consensus at 3.5% in September, though in line with our forecast. What’s particularly eye-catching, though, is the month-on-month fall in food prices. This caps a remarkably benign period for food inflation. No doubt it will pick up into the winter, not least given the recent rise in natural gas prices. But all the models tell us we should be seeing some effect of the energy shock in food – and so far we aren’t."

"Partly as a result, our calculation of ‘energy intensive’ inflation has actually fallen this year and shows little-to-no sign of picking up. This remains the case even after stripping out last year's increases in water bills and car taxes, which would otherwise distort the picture. This gauge tracks inflation categories that are classed as having either ‘very high’ or ‘high’ energy intensity by the Office for National Statistics – and range from food to cafés."

"Services inflation also looks fairly well-behaved. The jump in the headline services CPI to 3.7% (from 3.4%) was exaggerated by airfares, which are notoriously volatile. Remove these jumpy categories, as well as those that are indexed, and the Bank of England’s preferred measure of ‘core services’ inflation is still relatively contained – albeit up slightly over the past few months. This echoes the calm picture of private-sector wage growth, which sits at 3.4% after accounting for compositional effects."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Geoff Yu highlights that Polish bonds are under-owned compared with Hungarian paper, with holdings having halved as Eurozone steepening and fiscal risks weighed on performance. He argues that potential fiscal reform and eventual Eurozone ambitions could be rewarded by lower borrowing costs, while real rates, NBP hawkishness and peaking inflation support an asymmetrical upside profile for Polish fixed income.

Under-owned Polish bonds offer upside

"This contrasts strongly with Poland, where bond holdings have halved, while Eurozone holdings have fallen to their lowest levels this year as broader yield-curve steepening and fiscal risks weigh on performance."

"Meanwhile, headline inflation in Poland is the highest in CEE y/y, but core inflation is surprisingly flat despite the high level of current household subsidies. Weak core inflation is contributing to a very conservative tightening path for the National Bank of Poland (NBP), but high headline inflation increases the risk of expectations becoming unanchored."

"Fiscal change in Poland offers favorable risk-reward. If Hungarian bonds continue to outperform, we see a case for the remaining non-Eurozone CEE economies to revisit their fiscal frameworks."

"Politically, this is difficult in Poland, but if Hungary’s experience makes an overwhelmingly positive financial case, a shift in the domestic narrative, coupled with low external holdings, could generate strong performance."

"We expect real rates, NBP hawkishness and peaking inflation to drive performance, with asymmetrical upside based on flows and holdings."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Danske Bank’s Danske Research Team outlines US political tail risks ahead of the 3 November midterm elections. Early voting is underway in over 40 states and prediction markets still favor Democrats retaining control of both chambers. The report focuses on Trump’s potential actions, including attempts to remove Fed Governor Cook, fiscal decisions, and use of emergency powers.

Trump actions and market risk scenarios

"With two weeks until the US midterm elections on 3 November, early voting has already opened in more than 40 states. Prediction markets are broadly unchanged since we published our Midterm update, 13 October. The prediction market Polymarket continues to see Democrats winning control of both chambers as the most likely outcome, with a 62.5% probability."

"Trump appears pressured to remove Cook before the new Senate takes office in early January, as a Democratic majority could block his Fed Board nominations even if he removed Cook later. We do not expect him to succeed before the new Congress takes office."

"Trump could try to interfere directly with voting on Election Day. Kalshi assigns a 13% probability to Trump declaring a national emergency before Election Day and a 29% probability before the end of 2026. However, such a declaration should not give the president power over elections, as these are managed at state level."

"An even more severe measure would be for Trump to invoke the Insurrection Act or declare martial law. The former could be used to deploy the military at polling stations, which Kalshi assigns a 17% probability before the end of 2026. Martial law would mean military authority replacing civilian government and would be even more extreme."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Nomura’s UK budget preview expects Chancellor Healey, at his first budget on 28 October, to allow fiscal headroom to fall to around £15bn. Following September public finance data, the cash deficit is no longer surprising to the upside. Nomura projects a £4bn overshoot in the 2026-27 financing requirement, funded equally by additional gilt and T-bill issuance.

Headwinds constrain fiscal flexibility

"At his first budget (12.30pm Wednesday 28 October) Chancellor Healey is likely to allow a fall in fiscal headroom to around £15bn. Following today’s September public finance data the cash deficit is no longer surprising to the upside. Still, we think a combination of a lower run-rate of NS&I inflows and the need for cost-of-living support over the winter will mean a £4bn overshoot of the financing requirement for 2026-27."

"We assume this will be met equally between more gilt (£2bn) and T-bill (£2bn) issuance relative to existing plans (which were for £246.2bn and £5bn, respectively)."

"The Chancellor has limited his wiggle room to fill the fiscal gap, having ruled out various tax rises (no income tax, VAT or national insurance tax rate rises as outlined in the 2024 Labour manifesto, with capital gains tax now added to that list). Behavioural effects may result from raising tax rates more on a lower tax base (vs. raising tax rates less on a wider base) to bring in the same revenue."

"Elsewhere, the focal point could be any decision by the Treasury to use the potential firepower of the public financial institutions to boost investment, though that will require private sector take-up, as well as government willingness to expand its programmes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)