Pound gains as Fed's Williams sees no 2027 hike

GBP/USD climbs to near 1.3250, still inside its range since September 24.
The Pound barely moves against the Euro, so the gain is all about the Dollar.
US inflation is due Wednesday, and UK GDP is forecast to shrink on Thursday.

Joshua Gibson FXStreet

Despite Tuesday's gain, GBP/USD is in its third straight week of trading between roughly 1.3200 and 1.3300, a range it has held since September 24. It climbed in steps from just above 1.3200 to a high just under 1.3260 and trades near 1.3250, the middle of that range.

Bank of England (BoE) external member Greene said the UK's Bank Rate of 3.75% isn't holding the economy back much, and that waiting for inflation to spread into wages and prices would mean acting too late. New York Fed President Williams said one more US hike this year is appropriate but he sees no need for another in 2027. GBP/USD didn't move when external member Greene argued for a UK hike, and it made a high after President Williams said the Fed could be done after one more.

Traders' futures bets put about 90% odds on the Fed's rate, now 3.75%-4.00%, ending 2027 at least half a point higher, which is two hikes where President Williams sees one. The Pound rose against the Dollar and barely moved against the Euro, so Tuesday's gain came from a weaker Dollar rather than a stronger Pound.

On the calendar

US inflation for September is due on Wednesday, forecast at 3.6% for the year after 3.4% in August, with core inflation, the measure without food and energy, forecast at 2.5% from 2.4%. Retail sales follow on Thursday, forecast up 0.3% in September after 1.2%. A faster rise in prices would favour the futures market's view over President Williams's.

BoE Chief Economist Pill, one of three members who voted for a September hike, speaks on Wednesday and Thursday. UK Gross Domestic Product (GDP) for August is due on Thursday, forecast to shrink 0.1% after growing 0.4% in July, and both matter for whether the BoE hikes on November 5, which traders price above 80%. BoE Governor Bailey and Fed Chair Warsh both speak on Friday.

On the charts

The week of September 28 topped out just above 1.3300, the week of October 5 just under it and the current week so far just above 1.3250, while every low has been near 1.3200. GBP/USD is below its 50-day Exponential Moving Average (EMA) just above 1.3350 and its 200-day EMA just under 1.3400, and the 50-day crossed under the 200-day in early October.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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