Pound Hits 1.3359 as 102,000 Job Gain and 3.7% Pay Growth Push BoE Toward First Hike in 3 Years

GBP/USD traded at 1.3340 in the early London afternoon on Tuesday, up 0.23% from Monday’s close near 1.3309. The pair hit a session high of 1.3359 after the 07:00 BST jobs report and has held most of that gain through a volatile day for the dollar. Sterling jumped within seconds of the release, moving from 1.3330 to 1.3348. Against the euro, the pound rose from 1.1872 to 1.1887. Six sessions ago, on October 14, GBP/USD touched 1.3137, its lowest level of 2026. The pair has since recovered 222 pips, or 1.7%.

The thesis for this forecast is direct. The pound is the only major currency backed by a central bank about to start hiking, and Tuesday’s labor data removed the last argument for the Bank of England to wait. UK unemployment fell to 4.7% in the three months to August, well below the 5.0% consensus. Regular pay growth rose to 3.7%, above the 3.6% forecast. Markets now price a 95% probability of a 25-basis-point hike to 4.00% at the November 5 meeting. That would lift Bank Rate to the top of the Federal Reserve’s 3.75% to 4.00% range, closing the rate gap that has weighed on sterling all year.

The risk sits in the bond market. The UK 10-year gilt yield rose to 5.418% at Tuesday’s auction, up from 5.383%, near its highest in decades. Chancellor John Healey presents his Budget on October 28, with almost no fiscal room after the global bond rout. A gilt yield above the U.S. 10-year Treasury’s 5.10% is a sign of fiscal risk as much as of rate support. If the Budget disappoints, sterling can fall even as the BoE hikes.

The week is packed with UK events that will set the pair’s direction. September consumer price inflation lands on Wednesday, with economists expecting 3.4%, a nine-month high. Retail sales and flash PMIs follow on Friday. The Budget arrives on October 28, the Fed decides the same day, and the BoE meets on November 5. Sterling enters this run with momentum and a positioning tailwind: investors were heavily short the pound before Tuesday’s data.

The levels are clear. Support sits at 1.3300, then 1.3240 and the 2026 low at 1.3137. Resistance sits at the 1.3359 session high, then 1.3400 and 1.3500. The three-month forward rate stands at 1.3308, reflecting the narrow interest-rate differential between the two currencies.

Unemployment at 4.7% Against a 5.0% Forecast

Tuesday’s labor report was the strongest UK jobs print in months. According to the Office for National Statistics labour market overview, the unemployment rate fell to 4.7% in the three months to August, down 0.1 percentage point on both the quarter and the year. The market had expected the rate to rise to 5.0%. A 0.3-point miss on the unemployment rate is unusually large for a data series that typically moves in tenths.

Employment growth accelerated. The economy added 102,000 jobs in the three months to August, up from 67,000 in the quarter to July and far above the 20,000 consensus. The employment rate rose 0.2 percentage points to 75.3%. The economic inactivity rate fell 0.1 percentage point to 20.9%, meaning more people moved into the workforce. Revisions to earlier data left employment 41,000 higher than previously estimated.

The timely payroll data confirmed the direction. Payrolled employees rose by 13,000 in September, against a forecast decline of 26,000. It was the second consecutive monthly gain after a revised increase of 1,000 in August. Total payrolled employees stood at 30.3 million. The ONS flagged the September figure as provisional and likely to be revised. The provisional claimant count for September came in at 1.701 million.

The weak spot was vacancies. Job openings fell by 21,000, or 1.9%, to 691,000 in the three months to September. That was the largest decline since the start of the year and the lowest level outside the pandemic since 2014. There were 2.4 unemployed people per vacancy in June to August, down from 2.5 earlier in the year. Smaller businesses accounted for most of the decline in vacancies, with employers citing higher labor costs as a constraint on hiring.

Payrolls are still lower over the year. Payrolled employees were down 66,000, or 0.2%, compared with September 2025. The ONS described the labour market as broadly flat in 2026. That characterization is the key nuance for the pound: the data show a labor market that has stopped deteriorating, not one that is booming.

For the BoE, stopping is enough. The case for holding rates through 2026 rested on a weakening labor market that would cool wage growth and contain inflation. Tuesday’s numbers removed that argument. Unemployment is falling, employment is rising, and the weakness is concentrated in vacancies rather than in actual jobs. A central bank facing rising inflation and a stable labor market has no reason to delay.

Pay Growth Rose to 3.7%, Ending the Slide From a 3.4% Low

The wage data reinforced the hike case. Annual growth in regular earnings, excluding bonuses, rose to 3.7% in the three months to August, above the 3.6% forecast. Total earnings, including bonuses, also grew 3.7%. Regular pay growth has recovered from a low of 3.4% earlier in 2026, extending a gradual pickup over recent months.

The level of pay growth matters for inflation. Wage growth of 3.7% is not extreme. In earlier cycles, the BoE has tolerated pay growth near 3% to 3.5% as consistent with its 2% inflation target, depending on productivity. The issue is the direction. With CPI inflation at 3.1% in August and expected at 3.4% in September, pay growth of 3.7% gives workers a small real wage gain. If inflation keeps rising toward the 4% the BoE has projected for early 2027, wage demands are likely to follow.

The BoE has been explicit about that risk. In September, the Monetary Policy Committee said that so far, higher global energy costs have had a limited effect on price and wage setting in the UK, but the longer the volatility persists, the bigger the impact on inflation and the more likely it will need to raise Bank Rate. Tuesday’s pay data is the first sign that the wage side is starting to respond.

Private sector pay tells a more cautious story. Private sector pay growth sits at rates consistent with the inflation target, which suggests the wage pickup is not broad-based. Jobs are stagnant or rising slowly, and the labor market is not loose enough or easing any further. That cuts both ways for the pound. It supports a BoE hike in November, but it argues against a long series of hikes.

The September figure from a month earlier puts the trend in context. Average wage growth stood at 3.9% in the September release, and pay growth had slumped to its lowest rate in nearly six years before recovering. The current 3.7% reading is above the low but not accelerating sharply.

For the currency, the pay data supports a single hike and leaves the path after November open. If the BoE signals a series of increases, sterling has room to rally further. If it signals one hike and a pause, much of the move may already be priced. The difference between one hike and two would be worth at least a cent on GBP/USD.

Bank Rate at 3.75%, 6–3 Vote, and a 95% Chance of a November Hike

The BoE’s rate path is the main driver of sterling. Bank Rate stands at 3.75%. The MPC voted 6–3 to hold at its September 16 meeting, with three members preferring a 25-basis-point increase to 4.00%. The same 6–3 split occurred at the July meeting. Three consecutive policymakers have already voted to hike, which means the committee needs only two more votes to tighten.

The Bank of England said in September that inflation had risen to 3.1% and would go up further as higher energy prices feed through. The bank expects CPI inflation to top 4% in early 2027, double its 2% target. Its July Monetary Policy Report projected inflation rising to 3.2% in October and November 2026. The actual path is running above that projection.

Markets have moved firmly toward a hike. Prediction market pricing puts the probability of a 25-basis-point increase at the November 5 meeting at 95%, up from 91.5% a week ago. Most economists polled on October 15 expected the BoE to raise rates in November. Several expect a second hike in February, which would take Bank Rate to 4.25%.

A November hike would be historic. It would be the BoE’s first rate increase in over three years. Bank Rate peaked at 5.25% in 2023 and 2024 before falling to 3.75% through a series of cuts, the last coming in December. A reversal from cutting to hiking within a year would be a sharp turn, driven by the energy shock from the war on Iran.

The rate comparison with the United States explains the currency impact. The Fed funds target range sits at 3.75% to 4.00%. A BoE hike to 4.00% would put Bank Rate at the top of that range. For most of 2026, UK rates have sat at or below U.S. rates, which has weighed on the pound. Closing that gap removes one of the dollar’s advantages.

The Fed is moving too. Fed funds futures price an 89% chance of a December hike, which would lift the U.S. range to 4.00% to 4.25%. If both central banks hike once, the gap returns to where it was. Sterling’s advantage depends on the BoE delivering a second hike in February or signaling a longer tightening cycle than the Fed.

The ECB comparison favors the pound more clearly. The ECB deposit rate sits at 2.50%. A BoE hike to 4.00% would leave UK rates 150 basis points above euro area rates, which explains why sterling has outperformed the euro.

September CPI on Wednesday: 3.4% Expected, a Nine-Month High

Wednesday’s inflation report is the next major test. Economists expect UK consumer prices to rise 3.4% in September from a year earlier, up from 3.1% in August. That would be a nine-month high. It is the last inflation reading the MPC will see before its November 5 decision, and it is likely to seal the case for a hike.

The energy shock drives the headline. The war waged by the United States and Israel against Iran, which began on February 28, has pushed crude and refined energy prices higher. Brent crude hit $111.75 on Tuesday morning, its highest since May 20, before falling to $106.85. The UK imports a large share of its energy and is exposed to both oil and natural gas prices. European natural gas traded at €84.61 per megawatt-hour on Tuesday, down 3.89%, but far above pre-war levels.

Diesel adds to the pressure. Gasoil, the European diesel benchmark, jumped 9.5% in the week to October 9, against a 2.4% gain for Brent. UK transport and logistics costs are tied to diesel, and those costs feed into food and goods prices. The BoE’s July report projected food inflation averaging 2.6% and core goods inflation 1.2% in the second half of 2026, with both expected to rise.

The pass-through risk is what the BoE is watching. Higher energy bills can force businesses to raise their prices to cover costs, which turns a temporary energy shock into persistent inflation. The September data will show whether that second-round effect has started.

The scenarios for sterling are asymmetric. A reading at or above 3.4% confirms the November hike and supports the case for February, likely pushing GBP/USD toward 1.3400. A reading of 3.6% or higher would lift expectations for a faster tightening path and could carry the pair to 1.3450. A reading at 3.2% or below would cast doubt on the second hike, though a November move would remain likely. In that case, GBP/USD could fall back toward 1.3300.

Inflation expectations are drifting. In the BoE’s July survey, the median respondent expected CPI inflation to be 2.5% one year ahead, below the 2.8% expected in April. That was before the latest energy spike. If expectations rise in the next survey, the BoE will feel more pressure to act aggressively.

The 10-Year Gilt at 5.418% Is a Warning, Not Only Support

The gilt market is where sterling’s risk lives. The UK 10-year gilt yield rose to 5.418% at Tuesday’s auction, up from 5.383%. The bid-to-cover ratio rose to 3.61, showing strong demand despite the higher yield. Gilt yields have risen to around their highest levels in decades. The four-year gilt yield reached 4.945% at its most recent auction, with a bid-to-cover of 3.415.

The comparison with U.S. Treasuries is telling. The U.S. 10-year Treasury yielded 5.10% on Tuesday. That puts the UK 10-year gilt 32 basis points above the U.S. equivalent. Normally, a yield premium would attract capital and support the currency. In the UK’s case, part of the premium reflects fiscal risk, which tends to weaken the currency instead.

The 2022 episode is the reference point for that risk. When gilt yields spiked during the mini-Budget crisis, sterling fell to a record low against the dollar because investors were selling UK assets, not buying them. Rising yields driven by fears about government finances are bearish for sterling. Rising yields driven by expectations of higher policy rates are bullish. The current move contains both.

The fiscal squeeze is real. Chancellor Healey’s fiscal plans are being hemmed in by the global bond rout, after the resurgence in energy prices prompted traders to bet on a series of BoE rate increases. Higher gilt yields raise the government’s debt interest costs, which erodes the fiscal headroom available in the Budget. Healey has vowed to give businesses and households some breathing space, but every basis point of yield reduces his room to do so.

Recent auction demand offers reassurance. A bid-to-cover of 3.61 at the 10-year auction shows buyers are absorbing new supply at these yields. Several large investors are pricing in expectations that Healey will stick to fiscal discipline, which led to a rally in gilts earlier this week. If the Budget confirms that discipline, gilt yields could ease from the policy-rate side and leave sterling with the benefit of higher rates without the fiscal penalty.

For GBP/USD, the gilt yield acts as a pressure gauge. A 10-year gilt yield that stays between 5.30% and 5.45% while the BoE hikes is consistent with a gradual sterling rally. A spike above 5.60% on Budget disappointment would likely push the pair below 1.3200.

The October 28 Budget Is the Real Test for Sterling

Chancellor John Healey’s Budget on October 28 is the biggest risk event for the pound this month. It lands on the same day as the Fed decision and eight days before the BoE meeting. The Budget will determine whether the gilt market treats the UK as a disciplined borrower or a fiscal risk.

Healey’s room is tight. Higher gilt yields have eroded his already thin fiscal headroom. He has promised to give businesses and households some breathing space, which implies targeted tax relief or spending support. Businesses have called for the Chancellor to raise the employer national insurance threshold, arguing that higher labor costs are preventing hiring. Tuesday’s vacancy data, showing small firms pulling back because of costs, adds weight to that argument.

Any relief has to be funded. If Healey offers tax cuts or spending increases without matching savings, the gilt market is likely to push yields higher, which would hurt sterling. If he offers targeted relief within the existing fiscal rules, gilts could rally and the pound would benefit from both lower fiscal risk and higher BoE rates.

The UK’s structural position limits his options. Like France, the UK has less room than the United States to close deficits through tax increases, because tax revenues are already high relative to output. That leaves spending restraint as the main lever, which is politically harder.

The positioning context raises the stakes. Investors were still heavily positioned against sterling before Tuesday’s jobs data. A market that is short going into a major event is vulnerable to a squeeze if the outcome is better than feared. A credible Budget could trigger short covering that pushes GBP/USD through 1.3400 quickly. A poorly received Budget would confirm the bearish positioning and extend losses.

The Budget also affects the BoE’s calculus. A loose fiscal stance would add to inflationary pressure, which would push the BoE toward more hikes. A tight fiscal stance would reduce the need for monetary tightening. Sterling’s reaction depends on which effect dominates: more BoE hikes support the currency, while fiscal fears undermine it.

The base case is a cautious Budget that offers limited relief within existing rules. That outcome would likely keep gilt yields stable and allow the BoE hike to support sterling into November. The tail risk is a Budget that rattles the gilt market, which would reverse much of the pound’s October recovery.

Dollar Index at 101.76: Softer Dollar, Firmer Pound

The dollar side of the pair has turned in sterling’s favor. The U.S. Dollar Index tested 101.76 on Tuesday, down from 101.93 at the end of last week. The index had climbed to a one-year high earlier in October before easing. The dollar’s retreat reflects fading expectations of an October Fed hike, which fell from 44% on October 14 to between 15% and 17% after Fed Chair Kevin Warsh declined to signal the next decision.

That shift lines up with sterling’s recovery. GBP/USD hit its 2026 low of 1.3137 on October 14, the same day October Fed hike odds peaked. As those odds collapsed, the dollar eased and the pound recovered. The pair climbed above 1.33 last Friday ahead of this week’s UK data.

The dollar still has support. The 10-year Treasury at 5.10% offers one of the highest yields in the developed world, and the dollar attracts safe-haven demand during Middle East escalations. On Tuesday morning, as Brent spiked to $111.75, the dollar firmed against the euro. Sterling held its gains better than the euro, which shows that UK-specific strength offset part of the dollar’s safe-haven bid.

U.S. data was weak on Tuesday. Housing starts fell 5.2% to 1.221 million in September, the second-lowest since May 2020. Pending home sales dropped 7.3% to a record-low index reading of 66.0. Weak housing data tends to pull Treasury yields lower, which softens the dollar.

The equity market helped. The Dow gained 714 points, or 1.4%, and the S&P 500 rose 0.7%. Risk-on equity markets usually reduce demand for the dollar as a safe haven, which supports currencies like the pound.

The Fed meets October 27 and 28, in the same week as the UK Budget. Fed funds futures price an 82% chance of a hold and an 89% chance of a December hike. A hold with guidance that leaves December open would weaken the dollar further and support GBP/USD. A firm signal on December would strengthen the dollar and test sterling’s recovery.

For GBP/USD, the dollar index below 101.76 is supportive. A move back toward the one-year high would test 1.3240. The pound’s advantage is that it has its own domestic catalysts, so it is less dependent on dollar moves than the euro.

Sterling Outperforms the Euro: GBP/EUR at 1.1887

The pound’s strength is clearest against the euro. GBP/EUR rose from 1.1872 to 1.1887 after the jobs data. EUR/USD traded at 1.1215 on Tuesday, down 0.22%, while GBP/USD rose 0.23%. The divergence shows that sterling’s gains are driven by UK factors rather than by broad dollar weakness.

The euro faces a fiscal problem the pound does not share at the same intensity. French 10-year yields rose to 4.96%, and the OAT-Bund spread widened to 152.5 basis points, near the 158.67 basis points reached in early October, the widest since November 2011. Protests in France and a budget vote on October 27 have pushed investors away from euro assets. Euro short positions are at their largest since 2016.

The rate gap favors sterling. The ECB deposit rate sits at 2.50%. Bank Rate at 3.75% already exceeds it by 125 basis points, and a November hike would widen that to 150 basis points. The ECB decides on October 29, the day after the UK Budget. Markets expect the ECB to wait until December for its next hike, while the BoE is almost certain to move on November 5.

Inflation is higher in the euro area, which complicates the comparison. Euro area inflation reached 3.8% in September, above the 3.4% expected for the UK. But the ECB has been slower to respond, and President Christine Lagarde has counted higher bond yields as part of the tightening. The BoE has signaled more willingness to act on rates directly.

For GBP/USD traders, the euro comparison matters as a guide to flows. When investors want European exposure but are worried about French fiscal risk, the pound becomes the alternative. That rotation has supported sterling through October.

The yen and other currencies show the same pattern. Sterling was the strongest major currency against the dollar in the immediate aftermath of the jobs data and also rose against the yen. USD/JPY traded near 158.2. The pound’s outperformance across crosses confirms that the move reflects UK-specific strength.

The euro comparison also limits sterling’s upside. If the euro weakens sharply on French fiscal stress, the dollar tends to strengthen broadly, which can drag GBP/USD lower even as GBP/EUR rises.

Technical Map: 1.3300 Floor, 1.3359 High, 1.3500 Target

The chart has turned constructive after the October low. GBP/USD hit 1.3137 on October 14, its lowest level of 2026, and has since recovered 222 pips. Tuesday’s high at 1.3359 is the highest level since early October. The pair is extending its recovery toward the falling 100-day moving average, inside a broader trend that has been driven by dollar strength through most of the year.

Support starts at 1.3330, the pre-release level on Tuesday morning. Below that, 1.3300 is the first major floor, close to the three-month forward rate of 1.3308. The 1.3240 level marks the midpoint of the October range. The 2026 low at 1.3137 to 1.3140 is the deep support. A break below it would put sterling at its weakest level since 2025.

Resistance is layered above. Tuesday’s 1.3359 high is the first barrier. The 1.3400 round number sits next, and the falling 100-day moving average is in that area. A daily close above 1.3400 would clear the medium-term downtrend and open 1.3500. The weekly forecast range for GBP/USD runs from 1.3200 to 1.3500, which frames the upper boundary for this week.

The distances define the trade. From 1.3340, the 1.3300 support sits 0.3% below. The 1.3240 level sits 0.7% below, and the 2026 low at 1.3137 sits 1.5% below. The 1.3400 resistance sits 0.4% above, and 1.3500 sits 1.2% above.

The technical structure supports a higher low. If GBP/USD holds above 1.3240 through the CPI release and the Budget, the October 14 low at 1.3137 becomes a confirmed bottom. A higher low followed by a break of 1.3400 would mark the start of a new uptrend.

The volatility around this week’s events will be high. The jobs data produced an 18-pip move in seconds. CPI on Wednesday and the Budget on October 28 could each produce moves of 50 to 100 pips. Traders should expect wider ranges than the recent average until the BoE decision on November 5.

Three Scenarios for GBP/USD Into the November 5 BoE Decision

The forecast comes down to three paths, defined by CPI, the Budget and the two central banks.

The bullish scenario, a 45% probability, is a sterling rally to 1.3500. September CPI comes in at 3.4% or higher, the Budget offers targeted relief within existing fiscal rules, gilt yields stabilize between 5.30% and 5.45%, the Fed holds on October 28 without locking in December, and the BoE hikes to 4.00% on November 5 with guidance pointing to February. Short positions in sterling cover. GBP/USD breaks 1.3400 and reaches 1.3500, a 1.2% gain from 1.3340.

The base case, a 40% probability, is a range between 1.3240 and 1.3420. CPI meets expectations at 3.4%, the Budget is neutral, the Fed signals that December remains likely, and the BoE hikes once with balanced guidance. The hike is priced in at 95%, so the decision itself moves the pound little. GBP/USD holds its October recovery but does not extend it, finishing early November near 1.3350.

The bearish scenario, a 15% probability, is a Budget-driven selloff. Healey offers relief without credible funding, the 10-year gilt yield spikes above 5.60%, and investors sell UK assets. The Fed confirms a December hike, strengthening the dollar. GBP/USD falls through 1.3240 and tests the 2026 low at 1.3137, a 1.5% decline, with a break opening 1.3000.

The skew reflects the data. The labor market has stabilized, inflation is rising and the BoE is about to hike. Those fundamentals support the pound. The fiscal risk is real but has a defined date. Positioning adds to the upside: investors were heavily short sterling before Tuesday’s report.

The key confirmation levels are clear. A daily close above 1.3400 confirms the bullish scenario. A daily close below 1.3240 shifts the odds toward the bearish case. The events between now and November 5 will decide which happens.

GBP/USD Forecast Verdict: Bullish Above 1.3300, Target 1.3500

The verdict on GBP/USD is bullish, with a target of 1.3500, 1.2% above the current price of 1.3340. Tuesday’s labor report removed the last argument for a Bank of England pause. Unemployment fell to 4.7% against a 5.0% forecast. Employment rose by 102,000 against a 20,000 consensus. Payrolls grew by 13,000 against an expected 26,000 decline. Regular pay growth rose to 3.7%, above the 3.6% forecast. Markets price a 95% chance of a 25-basis-point hike to 4.00% on November 5, which would lift Bank Rate to the top of the Fed’s 3.75% to 4.00% range and 150 basis points above the ECB’s 2.50% deposit rate.

The inflation backdrop supports the case. UK CPI is expected at 3.4% on Wednesday, a nine-month high, and the BoE projects inflation above 4% in early 2027. Three MPC members already voted to hike in both July and September. The energy shock from the war on Iran is feeding into prices, with Brent touching $111.75 on Tuesday and diesel up 9.5% in a single week.

The risk is fiscal. The 10-year gilt yield rose to 5.418%, 32 basis points above the U.S. 10-year Treasury, near its highest in decades. Chancellor Healey’s October 28 Budget has almost no room for relief. A Budget that rattles the gilt market would reverse much of the pound’s 222-pip recovery from the 1.3137 low. Vacancies at 691,000, the lowest outside the pandemic since 2014, show that the labor market is stable rather than strong.

The trade is to buy GBP/USD on dips toward 1.3300, with a stop on a daily close below 1.3240, targeting 1.3400 first and 1.3500 next. That sets downside to the stop at 0.7% against upside to the target of 1.2% from the current price, and 1.5% from 1.3300. A close above 1.3400 confirms the breakout from the medium-term downtrend. A close below 1.3240 flips the view to neutral, with 1.3137 as the next test.

Sterling has the strongest domestic fundamentals among the major currencies for the next two weeks. A central bank about to hike, a labor market that has stopped weakening and investors positioned short all point the same way. The Budget is the one event that can derail the move, and until October 28, the path of least resistance for the pound is higher.

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