British Pound rallies to September 16 highs as USD slumps on election results

• GBP/USD gains strong positive traction on Wednesday amid a broad-based USD selloff.
• Hopes for Iran diplomacy and declining US bond yields drag the USD to a one-month low.
• BoE rate hike bets underpin the GBP and contribute to the strong positive momentum.

The GBP/USD pair catches aggressive bids during the Asian session on Wednesday, rallying beyond mid-1.3400s and hitting a fresh high since September 16 in the last hour amid a broadly weaker US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dives to an over one-month low as early US midterm vote counts pointed to rising chances of a Democratic victory. This raises the prospect of gridlock in Washington, driving safe-haven flows towards US Treasuries and dragging bond yields lower. Apart from this, hopes for Iran diplomacy turn out to be another factor undermining demand for the safe-haven buck, which, in turn, provides a strong boost to the GBP/USD pair.

President Donald Trump told the Financial Times on Tuesday that the US has no immediate plans to strike Iran, fueling optimism over a potential diplomatic resolution to end the US-Iran war and prompting traders to price out the geopolitical risk premium. The British Pound (GBP), on the other hand, continues with its relative outperformance amid easing fiscal concerns following the recent UK budget updates and firming bets that the Bank of England (BoE) will hike interest rates at its policy meeting on Thursday.

Meanwhile, the Labor Department’s monthly Job Openings and Labor Turnover Survey (JOLTS) showed that hiring held relatively steady and job openings rose more than expected in September to 7.5 million from 7.2 million. This comes on top of inflation risks due to elevated energy prices and underpins prospects for further policy tightening by the Federal Reserve (Fed). This, however, fails to provide any respite to USD bulls, suggesting that the path of least resistance for the GBP/USD pair is to the upside.

Moving ahead, traders now look to the US ADP report on private-sector employment and the ISM Services PMI for short-term impetuses later during the North American session. The focus, however, will be on the BoE policy update on Thursday and the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Nevertheless, the supportive fundamental backdrop suggests that any corrective pullback in the GBP/USD pair is more likely to be bought into.

GBP/USD daily chart

Technical Analysis

The GBP/USD pair maintains a bullish near-term bias following an intraday breakout above the 200-day Simple Moving Average (SMA) at 1.3424. Moreover, spot prices hover marginally above the 61.8% Fibonacci retracement at 1.3467, suggesting that buyers are defending this pivot area after reclaiming the mid-range of the recent downswing.

Further up, resistance is located at the 78.6% Fibo. retracement at 1.3556 ahead of the recent cycle high at 1.3670. On the downside, immediate supports are pegged near the 200-day SMA at 1.3424 and the 50.0% retracement at 1.3404, while deeper demand emerges at the 38.2% level at 1.3341 and the 23.6% retracement at 1.3264 ahead of the structural floor near 1.3138.

(The technical analysis of this story was written with the help of an AI tool. Know more.)