GBP/USD strengthens to approximately 1.3485 during Thursday’s Asian session. Democrats secure control of both the Senate and House of Representatives in the US midterm elections. The Bank of England is poised to elevate the Bank Rate to 4% from 3.75%, marking the first adjustment since August 2023. The GBP/USD pair appreciates to approximately 1.3485 during the Asian trading hours on Thursday. The US Dollar edges lower against the British Pound following an overwhelming victory by Democrats in the US midterm elections. Attention will be focused on the Bank of England’s interest rate decision later on Thursday. Democrats achieved significant majorities in both the Senate and House of Representatives during the midterm elections held on Tuesday. This development alleviates concerns regarding contested results and exerts downward pressure on the Greenback. The Bank of England is anticipated to increase interest rates for the first time in three years on Thursday. That would elevate the Bank rate to 4.0% from 3.75%.
Traders will pay close attention to BoE Governor Andrew Bailey’s conference for additional insights regarding the UK interest rate trajectory. Financial markets are currently anticipating a minimum increase of three-quarters of a percentage point in interest rates for the upcoming year, in addition to a hike this month, which would elevate UK interest rates beyond those forecasted for the US. “I think they will have pushed through with a hike,” said Hetal Mehta. “A pickup in energy prices a couple of months ago and more recent signs of resilient economic growth are likely to have tipped the balance on the MPC,” Hetal added. Analysts highlight that for GBP/USD, “the acceleration to a 7-week high above the 200dma (+2.7% since mid-October) demonstrates how the accumulation of short positions before the Budget last month are now being unwound.” They add that “further gains could lie ahead if history is any guide, helping the BoE in its battle to contain inflation.” The bank notes that Cable traded a “GBP/USD: 1.3408 – 1.3484 overnight range,” with “Cable in the clear above 200dma, up to 7-week high on US election and short covering,” and now sees “support 1.3390, resistance 1.3535.” In options, Societe Generale flags strikes at “1.3365 (£630m), 1.3450 (£570m),” while in EUR/GBP options it points to “0.8330 (€1.5bn), 0.8365-75 (€3.8bn).”
On the rates side, the bank reports that in the UK, “10y IRS -3bp to 4.797%, inside yesterday’s range,” with “support 4.71%, resistance 4.93%.” It reiterates that “sustained appreciation in cable (+2.7% from mid-October low) will help to contain inflation,” and notes that the “Green 2037 gilt auction yesterday [was] well received: b/c 3.38x, small tail of 0.3bp.” Fed’s Logan delivered a distinctly hawkish message, with an 8/10 FXS Speechtracker score modestly above the 7.7/10 historical average, underscoring a firmer stance than the established baseline. The insistence that the Fed “needs at least two more quarter-point rate hikes” and that skipping a meeting does not alter the policy destination, alongside the view that it is “unacceptable” inflation is not on track to 2%, signals a clear commitment to pushing policy into modestly restrictive territory despite strong growth and only gradually tightening financial conditions. Emphasis on gradualism and clarity around the end-point indicates a preference for a higher-for-longer trajectory that is likely to support the Dollar, particularly if markets had been anticipating an earlier pause. The FXS Fed Sentiment Index increased by 0.95 points to 143.62, indicating that the overarching policy environment continues to reside in hawkish territory, significantly surpassing the neutral threshold of 100.
In conjunction with the heightened FXS Speechtracker score, this action indicates that Federal Reserve communication remains inclined towards further tightening, a scenario generally favourable for the Dollar in comparison to lower-yielding counterparts. In the daily chart, GBP/USD exhibits a bullish near-term bias, maintaining its position above the 100-day simple moving average and the Bollinger middle band. Price is approaching the upper half of the Bollinger envelope, while the Relative Strength Index (14) at 65.3 indicates strong positive momentum nearing overbought territory, implying that upward pressure remains but could soon encounter exhaustion. On the topside, immediate resistance is positioned at the Bollinger upper band around 1.3505, where a decisive break would pave the way for additional gains. On the downside, initial support is identified at the 100-day SMA at 1.3390, followed by the Bollinger middle band near 1.3345. The lower band around 1.3185 represents a more distant bearish target should the current advance unwind more significantly.
