Hawkish expectations from the Bank of England and forecasts for rate hikes are propelling upward momentum for the British Pound. Easing safe-haven demand and relief from tensions in the Middle East are significantly impacting the US Dollar. Robust US GDP and labour statistics constrain more significant declines in the USD, even as the likelihood of Federal Reserve rate hikes diminishes. GBP/USD extends its gains for the third consecutive day, trading around 1.3400 during Asian hours on Friday. The pair appreciates as the British Pound gains ground on hawkish sentiment surrounding the Bank of England’s upcoming policy decision next week. Market participants anticipate that the Bank of England will implement a 25-basis-point increase in interest rates in November, with expectations for an additional hike in February. Meanwhile, UK Finance Minister John Healey announced plans to increase rates on banks, gambling, savers, landlords, and online shopping, while also outlining measures to address elevated energy prices.
Adding to the GBP/USD pair’s upward momentum, the US Dollar faces pressure as easing safe-haven demand weighs on the greenback amid hopes for US-led diplomatic peace talks. Easing tensions in the Middle East have contributed to alleviating concerns regarding oil supply and inflation, thereby reducing expectations for a Federal Reserve rate increase at its December meeting. Traders are currently factoring in a nearly 75% probability of a 25-basis-point rate increase, a decrease from 84.2% the previous day. Despite the Dollar’s recent challenges, recent US economic data underscores ongoing resilience. Preliminary Gross Domestic Product recorded a growth of 3.4% year-on-year, surpassing the anticipated figure of 3.2% and increasing from the second quarter’s reading of 2.2%. This growth was propelled by robust consumer spending, which stood at 3.8% year-on-year.
Furthermore, the Fed’s preferred inflation metric, the Core PCE Price Index, rose 3.1% YoY in line with expectations, while initial jobless claims dipped slightly to 194K, reinforcing signs of a heating economy and a tight labour market. Warsh’s press conference tone is firmly hawkish, with the 7/10 FXS Speechtracker score in line relative to the historical average, but reinforced by repeated, uncompromising commitments to delivering 2% PCE price stability. The emphasis that “ensuring price stability is not about a fixed date on a calendar” and that “new monetary medicine” is working, alongside comfort with inflation expectations and tightening financial conditions, signals a data-dependent but resolutely anti-inflation stance that supports the Dollar.
References to widening credit spreads, the impact of higher rates on technology and AI, and broadening capex suggest confidence that policy is biting without yet threatening the expansion, which keeps the Fed biased toward maintaining restrictive settings. The FXS Fed Sentiment Index increased by +14.39 points to 141.89, positioning itself firmly in hawkish territory and significantly above the neutral 100 threshold. This movement aligns with the robust anti-inflation messaging reflected in the FXS Speechtracker. This elevated index level underscores that markets should interpret Warsh’s remarks as reinforcing a higher-for-longer rate narrative, a backdrop that is typically supportive for the Dollar versus the Euro and Yen.
