British Pound slips as Fed decision, UK budget test Sterling bulls
- GBP/USD falls 0.22% to 1.3342 as Dollar demand strengthens.
- October Fed hike odds remain at 9%, while December reaches 83%.
- November BoE hike fully priced as UK Autumn Budget approaches.
The Pound Sterling loses some ground against the US Dollar, drifting lower by some 0.22% as traders wait for the release of the Federal Reserve’s monetary policy decision on Tuesday and Wednesday and also brace for the release of the UK’s Autumn Budget. The GBP/USD trades at 1.3342.
Pound retreats as Dollar strength, UK fiscal uncertainty overshadow BoE hike speculation
Geopolitics continued to drive price action, along with the AI hype as Anthropic filed for its IPO, driving the Nasdaq higher. Meanwhile, the US Dollar Index (DXY), which tracks the performance of the buck’s value against six currencies, is up 0.24% at 101.99, a headwind for the GBP/USD pair.
Last week, the US economic schedule was light, with price action being driven by the Middle East conflict and tech stocks. Speculation that the Federal Reserve will raise rates in the two-day meeting ending this Wednesday dissipated, with odds at 9%, while for the December meeting, the chances dropped from around 90% last week to just 83% as of writing, revealed Prime Terminal.
In the meantime, energy prices are edging lower as senior regional diplomats flew to Iran to try to de-escalate rising tensions. Rumours of a possible US-Israel attack on Tehran waned as US President Donald Trump stated that he would not attack Iran, he said on Sunday.
Last week, the US dollar came under selling pressure during a tech-led market selloff. Corporate earnings reports from large cloud computing providers Alphabet GOOGL.O, Microsoft MSFT.O and Amazon AMZN.O will also test the fragile AI-led market rally and broader risk appetite.
In the UK, eyes are on the Chancellor of the Exchequer, John Healey, who is poised to reveal his budget, with the priority of stabilising the UK bond market amid fears of big spending moves that the new Prime Minister Andy Burnham talked about when he became prime minister.
Meanwhile, expectations that the Bank of England will raise rates on November 5 hinge on the release of solid economic data, underscoring the economy's resilience.
Money markets had priced in a 100% chance of a 25-basis-point hike, meaning that the interest rate differential between the US and the UK would narrow to zero, an indication that GBP/USD might recover in the coming weeks if Fed Chair Kevin Warsh fails to strike a hawkish tone.
Ahead, the US economic docket will feature Durable Goods Orders, housing and jobs data, along with the Conference Board Consumer Confidence.
GBP/USD Price Forecast: Technical outlook
In the daily chart, GBP/USD trades at 1.3344. The pair retains a bearish near-term bias as it holds below the clustered 50-, 100- and 200-day simple moving averages (SMAs) around 1.3400, while also trading under key upward trend-line breaks at 1.3640 and 1.3820. Momentum has improved, with the Relative Strength Index (14) rising toward a neutral 52 area, but this only hints at moderating downside pressure rather than a clear shift in trend while price remains capped by these overhead structures.
On the topside, initial resistance is seen at the downward-sloping trend-line break near 1.3397, ahead of the dense SMA ceiling around 1.3400; a daily close above this cluster would be needed to ease the bearish bias and open the way toward 1.3640 and 1.3820. On the downside, immediate support is offered by the prior resistance trend line now turned floor around 1.3260, and a sustained move below this level would likely reassert selling pressure and expose lower levels in the broader range.
(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.