GBP/USD is experiencing modest gains, trading at approximately 1.3405 during the early session on Friday in Asia. The Bank of England is widely anticipated to raise borrowing costs at its forthcoming meeting on 5 November. The Federal Reserve is anticipated to maintain interest rates in October, with a subsequent increase projected for December, according to a poll. The GBP/USD pair registers slight increases around 1.3405 in the early Asian session on Friday. The British Pound edges higher against the US Dollar as hotter UK September Consumer Price Index data has bolstered expectations of a more hawkish stance from the Bank of England. The UK Retail Sales report is set to be released later today. UK inflation has ascended to an 11-month peak, driven by a notable increase in petrol and diesel prices, as reported by the Office for National Statistics on Wednesday. The Consumer Price Index increased by 3.5% year-over-year in September, up from 3.1% in the preceding month, exceeding expectations of 3.4%. Meanwhile, the core CPI inflation increased to 2.8% year-over-year in September, rising from 2.6% in August, surpassing the market consensus of 2.7%. Markets are currently reflecting a 98% probability that the Bank of England will increase its key interest rate by 25 basis points to 4.0% in the upcoming month, as indicated by LSEG data. This would mark the initial increase since 2023. The majority of traders are also anticipating an additional increase of the same magnitude at the central bank’s concluding meeting of the year in December.
Federal Reserve Chair Kevin Warsh declined to provide any definitive indication regarding the timing of a potential interest rate increase. The US central bank is expected to refrain from raising interest rates at its forthcoming October policy meeting, with a potential increase anticipated in December, as indicated by the majority of economists surveyed by Reuters. This outlook reflects policymakers’ inclination toward patience, despite persistent inflation suggesting the need for a more stringent approach. Analysts argue that recent Pound strength in EUR/GBP is not simply a reflection of domestic political popularity, noting that “it seems like sterling is riding on the coat-tails of PM Andy Burnham’s popularity. In reality, it looks like there is both independent sterling strength and independent euro weakness at play in EUR/GBP.” The bank acknowledges that “earlier this summer, we had felt that sterling gains would not last,” but says that “greater market confidence in a Bank of England tightening cycle – we look for 25bp hikes in February and November – makes sterling a high-carry European currency.”
Looking ahead, ING expects fiscal developments to have limited market impact, stating that “next week’s UK budget looks unlikely to derail the recent EUR/GBP break below 0.8400.” With “the euro still having plenty of room to drop on French politics,” the bank sees scope for the cross to remain under pressure, judging that “EUR/GBP can stay offered in a 0.8360-0,8430 range for the time being.” Greene’s 7.4/10 FXS Speechtracker score aligns with the historical average, indicating a consistent yet distinctly hawkish position rather than a heightened tone. Emphasis on stalled wage disinflation at levels inconsistent with 2% inflation, alongside a belief that policy should proactively lean against second-round effects, reinforces a bias toward maintaining a tight policy stance for an extended period and constrains near-term downside for the Pound. The observation that the risk of second-round effects is greater than previously anticipated, even as forward-looking data indicate pay growth nearing 3.5%, implies that Greene perceives the labour market as remaining sufficiently robust to warrant caution in policy relaxation. References to unexpected economic resilience and the possibility that labour market slack has peaked lend further credence to a hawkish interpretation, suggesting that rate cuts may be postponed and that the Pound could continue to be supported against the Euro and the Dollar.
In the daily chart, GBP/USD maintains a slightly bullish outlook as the spot price remains above the 100-day simple moving average and comfortably above the Bollinger middle band. Price is approaching the upper Bollinger band, indicating a potential test of short-term resistance levels. Meanwhile, the Relative Strength Index (14) at 58.6 remains in positive territory, not yet indicating overbought conditions, suggesting there is still capacity for additional upside before momentum becomes excessive. On the topside, immediate resistance is defined by the upper Bollinger band at 1.3412, where a clear daily close above would facilitate the continuation of the recent recovery. On the downside, initial support is provided by the 100-day SMA at 1.3390, with further support levels appearing at the Bollinger middle band around 1.3275 and subsequently at the lower band near 1.3140. These levels are expected to contain any corrective pullbacks as the broader bullish trend remains intact.
