British Pound edges higher to near 1.3250, renewed UK fiscal concerns in focus

The British Pound edged higher to around 1.3250 against the US Dollar (USD) during early Asian trading on Friday. The USD weakened following comments from Federal Reserve (Fed) Governor Christopher Waller, who suggested additional rate hikes might be needed to bring inflation down to the Fed's 2% target. Traders watched the Michigan Consumer Sentiment Index data for October later that day.

Waller stated that more rate hikes could be required, though there was flexibility on the pace of increases and left the door open for a pause during the upcoming October meeting. The chance of a US rate hike at the October meeting fell to 17.7% from 38% a week earlier, according to the CME FedWatch tool. There was an 83% chance of a hike at the December meeting.

However, UK fiscal concerns could negatively impact the Pound Sterling (GBP) in the short term. UK long-term borrowing costs hit a 1990s high last week, and Finance Minister John Healey's first budget on October 28 is a key focus. The UK chancellor indicated that large lenders face a "challenging fiscal picture," though he did not specify if higher taxes for banks would be introduced in the upcoming Budget.

UOB Group strategists revised their stance on GBP after Tuesday's move, noting a slight increase in downward momentum but still predicting a potential edge lower in the near future, within a range of 1.3140/1.3280. Fed Governor Waller's speech showed continued hawkishness, with a 7.3/10 FXS Speechtracker score indicating more monetary policy firming is needed to bring inflation to the target.

The FXS Fed Sentiment Index slightly declined to 138.33, still firmly in the hawkish range above the neutral 100 mark. GBP/USD remained bearish in the short term, trading below key support levels and the 20-day simple moving average, while facing resistance near 1.3295 and 1.3402.