British Pound edges lower below 1.3350 ahead of UK budget, Fed rate decision

The British Pound slipped below 1.3350 on Tuesday, as traders remained cautious ahead of the UK Autumn Budget and the US Federal Reserve's interest rate decision. Finance Minister John Healey will unveil his inaugural budget on Wednesday, amid concerns over mounting global borrowing costs and high energy prices stemming from the Iran conflict.

The Chancellor needs to generate additional revenue; raising income tax by 1% could yield around £11 billion annually by 2029-30 to fund defense spending gaps. Commerzbank analysts predict that the Bank of England's effort to withstand the energy price shock may soon change, with a first rate hike possible by the middle of next year.

The Federal Reserve increased rates by 25 basis points to a range of 3.75% to 4% in September, its first hike since 2023. The US central bank is likely to keep rates steady during its October meeting on Wednesday, although only 10.5% of market participants anticipate a rate rise that week. Analysts anticipate a series of rate hikes by the Bank of England, which could bolster the Pound Sterling.

The Pound has been trading below the 100-day simple moving average, with initial resistance at the 100-day SMA and support near the 20-day Bollinger middle band. Technical analysis indicates that the Pound's risk of second-round inflation effects is greater than anticipated, but resilient activity, wage disinflation, and labor market trends might help keep downside limited.