GBP/USD on Brink of Support Breakdown Amid UK Inflation and Fed Decision

The GBP/USD pair is showing signs of stabilizing near support levels as traders prepare for the release of UK inflation data and the Federal Reserve's decision.

Rising expectations for a Bank of England (BoE) interest rate hike later this year could support sterling, particularly if UK Consumer Price Index (CPI) surprises higher or the Fed falls short of increasingly hawkish market expectations.

The odds of a BoE hike have risen sharply from 15.6% to 43.2%, according to overnight index swaps (OIS), with December favored at 90.8% and November remaining a live meeting at 66.4%. However, yesterday's labor market report cast doubt over a November hike, with claimant counts jumping to a two-year high and private-sector wage growth slowing.

The bigger question is whether the BoE will hike in November or December, and today's inflation figures may provide an early indication of this. Meanwhile, the Fed's decision could also impact the pair, particularly if it falls short of hawkish expectations, which would leave room for a pullback in a US dollar already bid ahead of the event.