Sterling edged higher against the dollar on Wednesday as the greenback softened before US September inflation data. ING expects a hot print to reinforce the dollar's floor, while Bank of England commentary kept UK rate expectations in focus.
Sterling traded slightly firmer on Wednesday as the dollar's soft patch met caution before US September inflation data. GBP/USD was at 1.3264, up 0.11%, as of 05:10 ET (09:10 GMT).
The pound's gain looked dollar-led rather than driven by UK data. Traders now wait for the CPI release.
ING expects the dollar to firm on US inflation
Francesco Pesole, FX strategist at ING, wrote that the dollar had a soft session on Tuesday as stretched positioning and short-term overvaluation coincided with a recovery in global bonds. Therefore, he expects some dollar re-strengthening. A hot print, he said, can reinforce expectations of further tightening and the dollar's floor.
Consensus is for headline CPI to rise 0.6% month-on-month and core 0.2%, while ING's macro team expects 0.7% and 0.3%. Forecasts compiled ahead of the release see annual inflation accelerating to 3.6% from 3.4%, driven by energy.
Meanwhile, markets price a 20% chance of an October hike. New York Fed President John Williams still expects another hike this year but does not foresee further tightening in 2027.
Bank of England officials question the pace of hikes
BoE Chief Economist Huw Pill, who voted for a hike in September, said he was "a little bit more sceptical" of market pricing for four 25 bp increases over the next year. However, he also said a risk of some self-sustaining momentum in inflation had become clearer given the Gulf conflict.
Governor Andrew Bailey said on Tuesday that the situation gets harder the longer it goes on. Markets see a November hike as near certain.
Budget risk and chart levels limit the upside
ActionForex says the budget announcement on 28 October could cause additional volatility for the pound, particularly if the government's plans add to concerns over government borrowing. It adds that the IMF expects UK GDP to grow by 1.3% in 2026.
On the H4 chart, ActionForex expects GBP/USD to reach 1.3290, then decline toward support at 1.3242, within a corrective upward wave inside the main downtrend.
The main condition for ActionForex's bearish scenario is a close below support at 1.3242.
Sources: Investing.com, ActionForex
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