GBP/USD softens to approximately 1.3405 in the early Asian session on Tuesday. Democrats are anticipated to secure a majority in the House of Representatives. The BoE is expected to increase the Bank Rate to 4.0% during its meeting on Thursday in November. The GBP/USD pair declines to approximately 1.3405, ending a four-day winning streak during the early Asian trading hours on Tuesday. Markets may exhibit caution in anticipation of a week laden with significant catalysts, such as the US midterm elections, the Bank of England’s interest rate decision, and the release of US September jobs data. The US midterm elections suggest a potential shift in the narrative toward concerns surrounding inflation and deficits. Traders will assess the implications of the election results on the market outlook. Current forecasts indicate that Democrats are likely to secure a majority in the House, while the situation regarding control of the Senate remains ambiguous. Economists observe that should Democrats secure control of both the House and Senate, investors foresee heightened regulation and oversight of Artificial Intelligence, which could exert pressure 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, should Republicans achieve a sweeping victory, investors anticipate that the administration might implement additional tax reforms or augment defence spending, which could further exacerbate the nation’s already significant budget deficit.
Economists surveyed anticipate that the Bank of England will increase the Bank Rate to 4.0% from 3.75% during its policy meeting in November on Thursday. This would mark the first increase since August 2023, a period during which inflation remained above the BoE’s 2% target. Market participants will pay keen attention to the press conference for additional insights regarding the trajectory of UK interest rates. Any hawkish comments from the BoE Governor Andrew Bailey could provide some support to the British Pound against the US Dollar. Strategists 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. 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 increased by 0.95 points to 143.62, remaining in hawkish territory and aligning with the above-baseline FXS Speechtracker score.
This increase in the FXS Fed Sentiment Index indicates that markets are viewing Logan’s comments as indicative of additional policy measures to come, a context that generally supports the Dollar relative to the Euro and Yen. In the daily chart, GBP/USD maintains a bullish near-term bias as the spot price remains above both the 20-period Bollinger middle band and the 100-day simple moving average. Price is moving toward the upper section of the Bollinger envelope, while the Relative Strength Index (14) at approximately 58 indicates a positive, yet not overbought, momentum. This suggests that buyers maintain control as long as the pair remains above the crucial 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 identified at the 100-day SMA around 1.3385, followed by the Bollinger middle band near 1.3318. A more pronounced pullback would likely be contained ahead of the lower Bollinger band around 1.3175.
