British Pound weakens to near 1.3400 ahead of US midterm elections
- GBP/USD softens to around 1.3405 in Tuesday’s early Asian session.
- Democrats are widely expected to win the House of Representatives.
- The BoE is likely to lift the Bank Rate to 4.0% at its November meeting on Thursday.
The GBP/USD pair loses ground to near 1.3405, snapping the four-day winning streak during the early Asian trading hours on Tuesday. Markets might turn cautious ahead of a week full of catalysts, including the US midterm elections, the Bank of England (BoE) interest rate decision, and US September jobs data.
US midterm elections raise the prospect of a broader narrative swing back to inflation and deficit woes. Traders will gauge how the election outcomes will shape the market outlook. Current forecasts point to Democrats winning the House, with control of the Senate less clear.
Economists from Reuters see that if Democrats gain control of both the House and Senate, investors anticipate stricter regulation and oversight of Artificial Intelligence (AI), potentially weighing on financial markets.
If Democrats take the House while Republicans retain control of the Senate, the impact on the US fiscal outlook is likely to be mixed. Meanwhile, if Republicans sweep, investors expect the administration may introduce further tax reforms or increase defense expenditure, potentially widening the country's already substantial budget deficit.
Economists polled by Reuters expect the BoE to raise the Bank Rate to 4.0% from 3.75% at its November policy meeting on Thursday. This would be its first hike since August 2023, when inflation was still more than the BoE’s 2% target. Traders will closely monitor the press conference for more clues about the UK interest rate outlook. Any hawkish comments from the BoE Governor Andrew Bailey could provide some support to the British Pound (GBP) against the US Dollar (USD).
BoE seen kicking off tightening cycle but guidance may cap Pound gains
Strategists at Brown Brothers Harriman note that the upcoming Bank of England policy decision and Monetary Policy Report on Thursday are widely expected to mark the start of a new tightening phase, with the BoE “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” They point out that “firmer UK inflation and economic activity back the move,” and anticipate a “vote split…seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”
However, BBH cautions that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months.” In their view, “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside,” suggesting that while the initial move may be supportive for the Pound, the broader policy message could temper the market’s more aggressive rate path assumptions.
Logan flags more Fed hikes, keeping Dollar bulls in control
Fed’s Logan delivers a distinctly hawkish message, with an FXS Speechtracker score of 8/10, slightly above the 7.7/10 historical average and signaling a firmer stance relative to the established baseline. The insistence that the Fed “needs at least two more quarter-point rate hikes” and that skipping a meeting does not change the policy destination, combined with strong growth, solid consumer spending and a balanced-to-tightening labor market, underscores a commitment to making policy “modestly restrictive” until inflation is clearly headed back to 2%. Emphasis on gradual adjustment and clear communication suggests a preference for steady tightening that allows households, businesses and investors to adapt, reinforcing a supportive backdrop for the Dollar.
The FXS Fed Sentiment Index rose by 0.95 points to 143.62, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. This move higher in the FXS Fed Sentiment Index confirms that markets are interpreting Logan’s remarks as signaling further policy work ahead, a backdrop that typically underpins the Dollar against the Euro and Yen.
Technical Analysis: GBP/USD retains a positibe tone above the 100-day SMA
In the daily chart, GBP/USD holds a bullish near-term bias as spot remains above both the 20-period Bollinger middle band and the 100-day simple moving average (SMA). Price is pressing into the upper half of the Bollinger envelope, while the Relative Strength Index (14) at about 58 suggests constructive, but not overbought, momentum, hinting that buyers retain control as long as the pair stays anchored above the key moving average supports.
On the topside, immediate resistance aligns with the upper Bollinger band near 1.3465, where gains could pause or correct if buying pressure fades. On the downside, initial support is seen at the 100-day SMA around 1.3385, followed by the Bollinger middle band near 1.3318, while a deeper pullback would likely be contained ahead of the lower Bollinger band around 1.3175.
(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.
추천 기사
