British Pound sticks to losses vs firmer USD as Fed-BoE divergence favors bears

• GBP/USD kicks off the new week on a weaker note amid the emergence of USD dip-buying.
• Fed rate hike bets and geopolitical uncertainties revive demand for the safe-haven buck.
• The divergent Fed-BoE policy outlook favors bears and backs the case for a further decline.

The GBP/USD pair struggles to capitalize on Friday's goodish rebound from the 1.1335 area, or its lowest level since July 30, and attracts fresh sellers at the start of a new week. Spot prices stick to modest intraday losses through the early European session and currently trade around the 1.3375 region, down nearly 0.15% for the day, and seem poised to decline further.

Against the backdrop of the Federal Reserve's (Fed) hawkish stance, escalating tensions in the Middle East assist the safe-haven US Dollar (USD) to regain positive traction following Friday's modest pullback from its highest level since late July. Adding to this, the Bank of England's (BoE) dovish on-hold decision continues to undermine the British Pound (GBP) and further exerts some pressure on the GBP/USD pair.

The US central bank raised interest rates for the first time in three years at the end of the September meeting last Wednesday. Moreover, the so-called dot plot revealed that Fed officials expect at least one more hike this year. In contrast, the BoE held rates steady last Thursday and retained a cautious stance. The divergent Fed-BoE policy outlook, in turn, validates the negative outlook for the GBP/USD pair.

BoE hold at 3.75% undercuts hawkish GBP positioning

Analysts at Danske Bank note that in the UK, the Bank of England “kept the Bank Rate unchanged at 3.75%, in line with expectations,” with the Monetary Policy Committee voting 6-3 as “Pill, Greene and Mann again backed a hike.” They describe the outcome as “broadly as expected” but stress that, given “the very hawkish market pricing going into the meeting,” the decision nonetheless “triggered some GBP weakness and lower rates.”

On the geopolitical front, Yemen's Iran-backed Houthi forces attacked sensitive sites in the Saudi capital of Riyadh with missiles and drones on Saturday. Moreover, Iran ruled out reopening the Strait of Hormuz or returning to negotiations with the US until Washington meets its conditions. This keeps the geopolitical risk premium in play, favoring USD bulls and backing the case for further depreciation for the GBP/USD pair.

Traders now look forward to speeches from influential FOMC members, which, along with developments surrounding the Middle East crisis, will drive the USD and the GBP/USD pair. The focus, however, will be on a meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday. Apart from this, traders will take cues from flash PMIs from the UK and the US to grab short-term opportunities.

GBP/USD daily chart

Technical Analysis

The GBP/USD pair remains under pressure below the 100-day Simple Moving Average (SMA) and the 50.0% Fibonacci retracement, suggesting rallies are being capped by this nearby confluence of overhead levels. Immediate support is seen at the 61.8% Fibo. retracement at 1.3344, ahead of the 78.6% level at 1.3254 and the prior swing low region at 1.3138, where buyers may attempt to stem deeper losses.

On the topside, initial resistance is aligned at the 50.0% retracement at 1.3408, followed by the 100-day SMA at 1.3436 and the 38.2% retracement at 1.3471, with a stronger barrier higher up at the 23.6% level near 1.3550.

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