The British Pound drifts back to its floor as Crude Oil lifts the Dollar
- GBP/USD drifts back toward 1.3200, its floor for 13 sessions, as Crude Oil lifts the Dollar.
- Markets price about 90% odds of a BoE hike on November 5.
- UK August GDP forecast at -0.1% MoM on Thursday, after 0.4% in July.
Every session since September 24 has bottomed within about 25 pips of 1.3200, and Monday was the 13th. GBP/USD closed near 1.3210 after a climb to just above 1.3250, made before London opened, was given back as Brent rose above $107 a barrel. The Dollar Index reached its highest since April 2025 on the same move, so Monday's slide had more to do with the Dollar than the Pound.
Four BoE hikes priced and the Pound near a three-month low
Bank of England (BoE) external member Mann said on Monday that UK inflation near 4% around the turn of the year could set off a wage-price drift. She added that services inflation will be hard to bring down without more hikes. Markets put the odds of a hike on November 5 near 90% and price the UK's Bank Rate at 4.75% within a year, four quarter-point moves above its current 3.75%. That's four hikes priced for an economy forecast to have shrunk in August.
Cleveland Fed President Hammack, who votes on Fed policy this year, said the same day that more tightening is needed, that she'd rather move in smaller steps taken quickly, and that Treasury yields are modest by historical standards. Futures already put a December Fed hike above 80%, so both sides of GBP/USD are priced for higher rates.
The UK imports more Crude Oil and fuel than it produces and pays for it in Dollars, and Brent is what moved the pair on Monday. GBP/USD made its high before London opened with Brent near $104.50, and its low came after Brent went through $107.
The bet against the Pound has worked against the Dollar and not the Euro
Speculators held a net 97.6K futures contracts betting on a weaker Pound in the week to October 6, about £6.1 billion, according to the Commodity Futures Trading Commission (CFTC), and they added 6.5K that week. Of the Fed, the European Central Bank (ECB), the Bank of Japan (BoJ) and the BoE, only the BoE hasn't raised rates this year. So far, £6.1 billion of bets on a weaker Pound has bought 13 sessions at the same floor.
The Pound was bought against the Euro ahead of Prime Minister Burnham's speech on relations with the European Union on Monday, and EUR/GBP fell to its lowest since June 2025. The Euro is 57.6% of the Dollar Index and the Pound 11.9%, so the index's 18-month high has come mostly from a weaker Euro, and GBP/USD has fallen less than EUR/USD on the way.
Bailey and Warsh speak 90 minutes apart in Bangkok on Friday
The US Consumer Price Index (CPI) for September is due on Wednesday at 12:30 GMT, forecast at 3.7% YoY from 3.4%, with core CPI at 2.5%. US retail sales follow on Thursday at 12:30 GMT, forecast up 0.3% after 1.2% in August. A strong pair of releases would add to Fed hike bets and push on the Dollar side of GBP/USD.
UK August Gross Domestic Product (GDP) comes out on Thursday at 06:00 GMT, forecast at -0.1% MoM after 0.4% in July, with industrial and manufacturing output also forecast at -0.1%. A contraction would leave the BoE's November case resting on inflation alone. The British Retail Consortium's September like-for-like sales figure comes first, at 23:01 GMT on Monday, forecast at 0.7% YoY after 0.5%.
External member Greene, who voted for a hike to 4% at the June, July and September meetings, speaks on Tuesday at 03:00 GMT. She said on October 8 that it's dangerous for the BoE to assume the bond market will do its work, which is the opposite of Governor Bailey's view that higher market borrowing costs have bought the BoE time.
Chief Economist Pill speaks on Wednesday and Thursday, and Deputy Governor Breeden on Thursday. Governor Bailey speaks at 02:00 GMT on Friday at the International Monetary Fund (IMF) and World Bank meetings in Bangkok, and Fed Chair Warsh follows at 03:30 GMT, the day before the Fed's quiet period for its October 27-28 meeting begins. Chancellor Healey's Budget is on October 28 and the BoE decides on November 5.
Levels and bias
Resistance: 1.3250 stopped the bounces on October 8 and 9, and Monday's high just above it came before London opened and didn't hold. 1.3300 has capped every session since September 24 except a brief spike above it on September 30.
Support: 1.3200 has been the floor for 13 sessions, and only October 1 closed under it. 1.3180 is the low of that run and of late June, and GBP/USD last traded at 1.3150 in late June.
Bias: The lean turns short while 1.3250 caps on a closing basis, with 1.3180 the first objective and 1.3150 the second. The daily Stochastic Relative Strength Index (Stoch RSI) has climbed out of oversold to near 45 and is still rising, which is the main risk to the short. A daily close above 1.3250 ends it.
GBP/USD daily chart
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.
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