GBP/USD Forecast: Pound Sterling could target multi-year highs on hawkish BoE vote split
- GBP/USD gathers bullish momentum and rises toward 1.3300.
- The Bank of England is forecast to maintain the bank rate at 5%.
- The vote split could influence Pound Sterling's valuation.
GBP/USD touched its highest level since March 2022 near 1.3300 in the early American session on Wednesday. Although the pair retreated later in the day, it managed to close in positive territory. Ahead of the Bank of England's (BoE) monetary policy announcements, the pair gathers bullish momentum and trades comfortably above 1.3250.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.87% | -1.19% | 1.44% | -0.46% | -1.93% | -1.71% | -0.25% | |
| EUR | 0.87% | -0.37% | 2.28% | 0.38% | -1.13% | -0.90% | 0.58% | |
| GBP | 1.19% | 0.37% | 2.60% | 0.74% | -0.77% | -0.53% | 0.95% | |
| JPY | -1.44% | -2.28% | -2.60% | -1.87% | -3.27% | -3.09% | -1.75% | |
| CAD | 0.46% | -0.38% | -0.74% | 1.87% | -1.56% | -1.26% | 0.09% | |
| AUD | 1.93% | 1.13% | 0.77% | 3.27% | 1.56% | 0.23% | 1.70% | |
| NZD | 1.71% | 0.90% | 0.53% | 3.09% | 1.26% | -0.23% | 1.49% | |
| CHF | 0.25% | -0.58% | -0.95% | 1.75% | -0.09% | -1.70% | -1.49% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The Federal Reserve (Fed) decided to lower the policy rate by 50 basis points (bps) to the range of 4.75%-5% after the September meeting. The immediate market reaction caused the US Dollar (USD) to come under heavy selling pressure and triggered an upsurge in GBP/USD.
Later in the session, however, the cautious market mood helped the USD limit its losses and caused GBP/USD to retreat. In the post-meeting press conference, Chairman Jerome Powell explained that they could dial back the pace of cuts if the economy remains solid, while adding that downside risks to employment have increased.
The BoE is forecast to maintain the bank rate at 5%. Because there will not be a press conference, investors will scrutinize the statement language and the vote split. In August, BoE policymakers voted 5-4 in favor of a 25 bps cut. In case the BoE leaves the interest rate unchanged with a large majority of policymakers, 7 or more, agreeing on this decision, Pound Sterling could preserve its strength. If it's another close call, same as it was in August, GBP/USD could have a difficult time stretching higher with the immediate reaction.
In the meantime, US stock index futures trade decisively higher in the Fed aftermath. A risk rally in the second half of the day could put additional weight on the USD's shoulders, helping GBP/USD hold its ground even if the BoE event has a negative impact on Pound Sterling's valuation initially.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70 but investors could ignore overbought conditions in the near term. On the upside, 1.3300 (static level) aligns as first resistance before 1.3340 (static level from March 2022) and 1.3400 (round level).
In case GBP/USD retreats below 1.3260 (static level, former resistance), technical sellers could take action. Below this level, 1.3200 (static level) could be seen as next support before 1.3150 (100-period Simple Moving Average).
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
