Pound Slides as Dollar Firms on Inflation, Fed Outlook

Key Moments

Dollar Strength Pressures Pound Ahead of FOMC Minutes

GBP/USD retreats during Asian trading on Wednesday, hovering around 1.3250 after modest gains in the previous session. The pair weakens as the US Dollar (USD) advances, supported by climbing oil prices that could stoke fresh inflation concerns and bolster expectations for additional Federal Reserve (Fed) rate increases. Market participants are focused on the release of the Federal Open Market Committee (FOMC) Meeting Minutes later in the day.

Some downside in GBP/USD may be cushioned by a partial scaling back of Fed tightening expectations following last week’s softer US labor-market data, which has weighed on the Greenback. According to the CME FedWatch tool, interest-rate swaps indicate traders are assigning an almost 20% probability that the Fed will raise its benchmark rate at its October meeting.

Mixed G10 FX Performance Against the Dollar

Strategists at Scotiabank note that “G10 currencies continue to trade in mixed fashion vs. the USD,” with “a majority showing gains into Tuesday’s NA open.” This uneven performance highlights the fragmented nature of Dollar trading, even as more G10 pairs edge higher into the North American session.

Despite the softer tone in GBP/USD, the British Pound (GBP) may still find some underlying support from domestic factors. Elevated energy prices and ongoing inflation worries are helping to entrench expectations that the Bank of England (BoE) will keep interest rates elevated for an extended period.

BoE’s Mann Flags Risk of Inflation Near 4%

BoE policymaker Catherine Mann underscored these risks on Tuesday, warning that inflation above the central bank’s 2% target appears entrenched in the UK economy and could reach 4% around the turn of the year, coinciding with typical wage negotiations. Mann, who has consistently backed a 25-basis-point rate increase to 4% since July, emphasized that wage developments could exert additional upward pressure on prices.

GBP/USD Technical Picture: Bias Remains Bearish

On the daily chart, GBP/USD trades at 1.3250 and maintains a bearish short-term setup, with spot prices capped below both the nine- and 50-day Exponential Moving Averages (EMAs). The pair continues to drift lower away from these overhead technical levels, while the 14-day Relative Strength Index (RSI) at 39.3 remains below the 50 midpoint, signaling persistent downside pressure rather than a clear sign of a bullish reversal.

On the upside, initial resistance is located at the nine-day EMA at 1.3259, which protects a more substantial technical barrier at the 50-day EMA at 1.3387. While GBP/USD trades below this EMA band, rallies are likely to meet selling interest, and the broader trend bias will stay bearish unless the pair can secure a daily close above 1.3387, which would be needed to begin undermining the current downtrend structure.