The British pound has rallied to a four-week high as resilient UK employment data and hawkish Bank of England expectations support sterling ahead of today's inflation report. With a November BoE rate hike almost fully priced in, it may require an upside inflation surprise to provide another tailwind. GBP/USD bulls are eyeing a break above the 200-day EMA, while GBP/AUD shows signs of a potentially larger bullish reversal.
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British Pound Strengthens Ahead of UK CPI as BoE Rate Hike Looms
UK Employment Resilience Keeps November BoE Hike on Track
The Bank of England (BOE) remains on track to hike in November after Tuesday's employment report provided further evidence of a resilient UK economy. Unemployment fell to 4.7% from 4.9% in September according to ONS, payroll employment rose by 13,000 in September, and regular wage growth reached 3.7% y/y, above expectations. That said, vacancies fell to 691,000, suggesting underlying labour demand remains subdued despite the headline improvement.
Money markets have almost fully priced in a 25bp hike to 4% on 5 November, with further tightening expected into 2027. BoE policymaker Megan Greene added to the hawkish narrative on Tuesday, warning that the risks of second-round inflation effects are greater than previously thought and reiterating the need for pre-emptive tightening. Her comments contrast with Governor Andrew Bailey's more cautious assessment that such pressures remain relatively subdued, highlighting divisions over how aggressively the BoE may need to respond.
Attention now turns to today's September CPI report, where headline inflation is expected to accelerate to 3.4% y/y from 3.1%. An upside surprise could reinforce sterling's interest-rate advantage, while softer inflation would challenge the extent of tightening currently priced into UK rates.
GBP/USD Technical Outlook: British Pound Eyes Further Gains
Sterling has rallied to a four-week high ahead of today’s inflation figures, fuelled by improving employment and wage data alongside scaled-back Fed rate bets. But GBP/USD bulls had to ride out a quick retest of the June low before the bullish reversal I hypothesised could get underway.
While resistance has been met around the 200-day EMA and 1.34 handle, the RSI (14) is back above 50 and nowhere near overbought. As we’re witnessing range expansion from a multi-week compression pattern at the end of a selloff, I suspect GBP/USD could have further to go to the upside. The RSI (2) warns of near-term exhaustion, though bulls may be seeking dips above 1.33 in anticipation of a break above the 200-day EMA.
Note the 1.3475 low and September VPOC at 1.3543 as potential upside targets for bulls.
Source: ICE, TradingView
GBP/AUD Technical Outlook: Inverse Head and Shoulders in Focus
Whether the inverted head and shoulders pattern on the weekly chart goes on to succeed remains to be seen, but it could take several weeks or months to play out if it does. Until then, I am focusing on whether we at least see the completion of the ‘right shoulder’ (RS) of the long-term bullish reversal pattern. This assumes a move higher towards the neckline around the June and March highs.
The daily GBP/AUD chart shows an explosive move out of a bull flag, though resistance was met around the 200-day EMA and monthly pivot point. Bulls could be seeking dips above the swing low around 1.859, though the monthly pivot point, high-volume node (HVN) and 1.90 handle also form a potential support zone to seek bullish reversal patterns.
Source: ICE, TradingView
