GBP/USD Price Forecast: Holds steady above 1.3400, retains constructive tone above key support
- GBP/USD flatlines around 1.3405 in Tuesday’s early European session.
- The constructive outlook of the pair remains intact above the 100-day SMA, with bullish RSI momentum.
- The first upside barrier emerges at 1.3465; the initial support level is seen at 1.3385.
The GBP/USD pair trades on a flat note near 1.3405 during the early European trading hours on Tuesday. Traders prefer to wait on the sidelines ahead of the key events later this week, including the US midterm elections, the Bank of England (BoE) interest rate decision and US September jobs data.
The BoE is expected to raise the Bank Rate to 4.0% from 3.75% at its November policy meeting on Thursday. This would be its first hike since August 2023, when inflation was still more than the BoE’s 2% target. ING analysts said that after Thursday's expected rate hike, a follow-up hike from the BoE in February is also likely, but said that market pricing for BoE rate hikes "looks extreme.”
Traders will closely monitor the press conference for more clues about the UK interest rate outlook. If BoE Governor Andrew Bailey delivers hawkish remarks, this could boost the British Pound (GBP) against the US Dollar (USD) in the near term.
BoE seen kicking off tightening cycle but guidance may cap Pound gains
Strategists at Brown Brothers Harriman note that attention will focus on the Bank of England’s policy decision and Monetary Policy Report on Thursday, 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,” while the vote split is anticipated at “7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”
BBH adds that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months,” warning that “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside.”
Greene flags stalled wage disinflation, keeping BoE hawkish bias intact
BoE's Greene scores 7.4/10 on FXS Speechtracker, exactly in line with the historic average, signaling a steady but firmly hawkish stance. Emphasis that wage disinflation has stalled at levels above those consistent with 2% inflation, alongside forward-looking pay growth near 3.5% and a surprisingly resilient economy, reinforces concern that second-round inflation effects remain a material risk.
Greene’s call to proactively lean against these second-round effects, and the view that such risks are now greater than previously thought, points to a reluctance to endorse rapid policy easing. The suggestion that labor market slack may have peaked supports the idea that underlying wage pressures could persist, a configuration that is typically supportive of the Pound as markets price a more persistent BoE tightening bias.
Technical Analysis: GBP/USD maintains a constructive tone above the 100-day SMA
In the daily chart, GBP/USD holds above both the 100-day Simple Moving Average (SMA) and the Bollinger Bands 20-period middle SMA, which together suggest a supported near-term tone after the recent recovery off the lower band. The Relative Strength Index (14) at 57.9 leans constructive without yet signaling overbought conditions, hinting that bullish momentum is still developing while price approaches the upper edge of the recent volatility envelope.
On the topside, initial resistance level emerges at the upper boundary of Bollinger band near 1.3465, en route to the July 15 high of 1.3558. Further north, the next hurdle to watch is the August 21 high of 1.3675.
On the downside, immediate support level is seen at the 100-day SMA at 1.3385, followed by the Bollinger middle band around 1.3320 and then the October 15 low of 1.3184. Any follow-through selling below this level could expose the recent Bollinger lower band low near 1.3172.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
