Overview
The British pound has surged to a four-week high, buoyed by strong UK employment data and expectations of a hawkish stance from the Bank of England (BoE) ahead of the upcoming inflation report. With a rate hike in November nearly fully anticipated, an unexpected rise in inflation could further support the pound.
UK Employment Resilience
Recent employment figures indicate a resilient UK economy, with unemployment dropping to 4.7% from 4.9% in September. Payroll employment increased by 13,000, and regular wage growth reached 3.7% year-on-year, surpassing expectations. However, a decline in job vacancies to 691,000 suggests that underlying labor demand may still be weak.
Market Expectations
Money markets have almost fully priced in a 25 basis point hike to 4% on November 5, with further tightening anticipated into 2027. BoE policymaker Megan Greene has emphasized the need for pre-emptive tightening due to rising inflation risks, contrasting with Governor Andrew Bailey's more cautious view on inflation pressures.
Upcoming CPI Report
The focus now shifts to the September Consumer Price Index (CPI) report, where headline inflation is expected to rise to 3.4% year-on-year from 3.1%. A surprise increase could enhance the pound's interest-rate advantage, while a softer inflation reading might challenge the current tightening expectations.
Technical Outlook for GBP/USD
The GBP/USD has reached a four-week high, driven by positive employment and wage data. Resistance is currently around the 200-day EMA and the 1.34 level. The Relative Strength Index (RSI) indicates potential for further gains, although near-term exhaustion is noted. Key upside targets for bulls include 1.3475 and 1.3543.
Technical Outlook for GBP/AUD
The GBP/AUD is showing signs of a potential bullish reversal with an inverse head and shoulders pattern forming. The daily chart indicates a strong move out of a bull flag, but resistance has been encountered at the 200-day EMA. Bulls may look for dips above the swing low around 1.859, with the monthly pivot point and 1.90 level serving as potential support zones.