British Pound edges higher vs weak USD as focus remains glued to this week's FOMC meeting
- GBP/USD regains positive traction at the start of a new week amid a combination of supporting factors.
- The recent decline in US bond yields caps the USD recovery, while BoE rate hike bets underpin the GBP.
- Mideast jitters and a hawkish Fed could limit USD losses ahead of the central bank event and data risks.
The GBP/USD pair attracts some dip-buyers near the 1.3360 area during the Asian session on Friday, stalling last week's modest pullback from its highest level since September 16. Bulls, however, might await sustained strength and acceptance above the 1.3400 mark before placing fresh bets as the market focus remains glued to this week's key central bank event.
The US Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is expected to leave interest rates unchanged at the end of a two-day policy meeting. In the absence of updated economic projections, traders will closely scrutinize the accompanying rate statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference. Apart from this, important US macro releases – the Advance Q3 GDP print and the Personal Consumption Expenditures (PCE) Price Index on Thursday – will influence market expectations about the Fed's future policy path. The outlook, in turn, will drive US Dollar (USD) demand and provide some meaningful impetus to the GBP/USD pair.
In the meantime, the recent sharp decline in US bond yields keeps a lid on the attempted USD recovery move from a three-week low, touched last Thursday. The British Pound (GBP), on the other hand, continues to draw support from firming expectations of tighter monetary policy from the Bank of England (BoE), bolstered by stronger-than-expected UK inflation data and resilient labor market figures. In fact, traders are pricing in roughly 95% odds for a 25-basis-point (bps) BoE rate hike at the next meeting on November 5. This, in turn, acts as a tailwind for the GBP/USD pair and backs the case for an extension of the recent goodish rebound from a nearly four-month trough, touched on October 14.
Meanwhile, investors are still assigning a nearly 80% probability that the US central bank will raise borrowing costs in December. Furthermore, the geopolitical risk premium remains firmly in play amid stalled US-Iran peace talks. In further developments, the Iran-backed Houthis in Yemen threatened on Sunday that they will keep attacking Saudi Arabia's King Khalid Airport in Riyadh. This could limit losses for the safe-haven Greenback and cap the GBP/USD pair, making it prudent to wait for sustained strength and acceptance above the 1.3400 mark before placing fresh bullish bets. Nevertheless, the supportive fundamental backdrop suggests that any corrective pullback could be bought into.
GBP/USD daily chart
Technical Analysis
The GBP/USD pair holds just beneath the 100-day Simple Moving Average (SMA) at 1.3390 and the 50.0% Fibonacci retracement at 1.3403. A daily close above the latter would open the way toward the 61.8% retracement at 1.3466 and then 1.3556.
On the downside, initial support emerges at the 38.2% retracement at 1.3341, ahead of the 23.6% level at 1.3263, where buyers would be expected to show more interest. A sustained break under 1.3263 would expose the structural Fibonacci anchor at 1.3137.
(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.
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