British Pound edges higher above 1.3450 ahead of BoE rate decision
- GBP/USD strengthens to around 1.3485 in Thursday’s Asian session.
- Democrats take control of both the Senate and House of Representatives in US midterm elections.
- BoE is set to raise the Bank Rate to 4% from 3.75%, the first increase since August 2023.
The GBP/USD pair gains ground to near 1.3485 during the Asian trading hours on Thursday. The US Dollar (USD) edges lower against the British Pound (GBP) following an overwhelming victory by Democrats in the US midterm elections. All eyes will be on the Bank of England (BoE) interest rate decision later on Thursday.
Democrats swept to sizable majorities in the Senate and House of Representatives at midterm elections on Tuesday. This development ease concerns about contested results and drags the Greenback lower.
The BoE is widely expected to raise interest rates for the first time in three years on Thursday. That would bring the Bank rate to 4.0% from 3.75%. Traders will closely monitor BoE Governor Andrew Bailey’s press conference for more clues on the UK interest rate outlook.
Financial markets currently price in at least a three-quarter-point rate hike for next year, on top of one this month, which would take UK interest rates above those projected for the US.
"I think they will have pushed through with a hike," said Hetal Mehta, chief economist at wealth managers St James's Place. “A pickup in energy prices a couple of months ago and more recent signs of resilient economic growth are likely to have tipped the balance on the MPC,” Hetal added.
Pound extends gains as GBP/USD clears 200dma, aiding BoE inflation fight
Analysts at Societe Generale highlight that for GBP/USD, “the acceleration to a 7-week high above the 200dma (+2.7% since mid-October) demonstrates how the accumulation of short positions before the Budget last month are now being unwound.” They add that “further gains could lie ahead if history is any guide, helping the BoE in its battle to contain inflation.” The bank notes that Cable traded a “GBP/USD: 1.3408 - 1.3484 overnight range,” with “Cable in the clear above 200dma, up to 7-week high on US election and short covering,” and now sees “support 1.3390, resistance 1.3535.” In options, Societe Generale flags strikes at “1.3365 (£630m), 1.3450 (£570m),” while in EUR/GBP options it points to “0.8330 (€1.5bn), 0.8365-75 (€3.8bn).”
On the rates side, the bank reports that in the UK, “10y IRS -3bp to 4.797%, inside yesterday’s range,” with “support 4.71%, resistance 4.93%.” It reiterates that “sustained appreciation in cable (+2.7% from mid-October low) will help to contain inflation,” and notes that the “Green 2037 gilt auction yesterday [was] well received: b/c 3.38x, small tail of 0.3bp.”
Logan flags at least two more hikes, keeping Dollar bulls on the front foot
Fed’s Logan delivered a distinctly hawkish message, with an 8/10 FXS Speechtracker score modestly above the 7.7/10 historical average, underscoring a firmer stance than the established baseline. The insistence that the Fed “needs at least two more quarter-point rate hikes” and that skipping a meeting does not alter the policy destination, alongside the view that it is “unacceptable” inflation is not on track to 2%, signals a clear commitment to pushing policy into modestly restrictive territory despite strong growth and only gradually tightening financial conditions. Emphasis on gradualism and clarity around the end-point suggests a preference for a higher-for-longer path that should underpin the Dollar, especially if markets had been leaning toward an earlier pause.
The FXS Fed Sentiment Index rose by 0.95 points to 143.62, reinforcing that the broader policy backdrop remains firmly in hawkish territory well above the neutral 100 mark. In combination with the elevated FXS Speechtracker score, this move signals that Fed communication continues to lean toward additional tightening, a configuration typically supportive for the Dollar against lower-yielding peers.
Technical Analysis: GBP/USD maintains a bullish outlook above the 100-day SMA
In the daily chart, GBP/USD trades with a bullish near-term bias, holding above the 100-day simple moving average (SMA) and the Bollinger middle band. Price is pressing the upper half of the Bollinger envelope, while the Relative Strength Index (14) at 65.3 shows firm positive momentum edging toward overbought territory, suggesting upside pressure persists but may soon face fatigue.
On the topside, immediate resistance is aligned with the Bollinger upper band near 1.3505, where a clear break would open the door to further gains. On the downside, initial support is seen at the 100-day SMA at 1.3390, followed by the Bollinger middle band near 1.3345, while the lower band around 1.3185 marks a more distant bearish target if the current advance unwinds more deeply.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.