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British Pound holds gains despite stronger US PMI, hawkish Fed stance

  • GBP/USD trades with mild losses around 1.3240 in Thursday’s early European session. 
  • Stronger US PMI has fueled Fed rate hike bets. 
  • Financial markets are currently pricing in a 67% chance of a BoE rate hike in November. 

The GBP/USD pair posts modest gains near 1.3240 during the early European trading hours on Thursday. However, the potential upside for the major pair might be limited amid a widening policy gap between a hawkish Federal Reserve (Fed) and a more cautious Bank of England (BoE). 

According to the US S&P Global Flash Purchasing Managers Index (PMI), released on Wednesday, the Composite PMI improved to 58.4 in September from 56.0 in August. Meanwhile, the Manufacturing PMI rose to 57.0 in September, compared to 53.9 in the previous reading. This figure came in better than the 53.5 forecast. 

Federal Reserve (Fed) Governor Michael Barr said on Wednesday that “further policy adjustments are likely to be needed” to get inflation under control. Earlier this week, Fed President Tom Barkin and Boston Fed President Susan Collins both backed the recent interest rate increase, citing continued inflationary pressures. 

Stronger-than-expected US PMI data and hawkish remarks from Fed officials could boost the Greenback and act as a headwind for the major pair in the near term.

On the UK’s front, Bank of America Global Research anticipates the BoE to raise interest rates twice over the next six months, as higher energy prices raise the risk of persistent inflation. Meanwhile, the OECD said on Wednesday that the UK central bank does not need to raise interest rates because policy in the UK is tight enough to keep inflation in check. 

Markets are pricing in a 67% odds of a BoE rate hike in November, with another increase expected in December, according to LSEG data.

Pound outlook softens as BBH questions BoE hike trajectory

Strategists at Brown Brothers Harriman highlight growing risks around the market’s aggressive Bank of England pricing, noting that “the swaps curve continues to imply about 100bps of BoE rate hikes in the next twelve months to 4.75%.” In their view, “the BoE may not need to tighten as much as markets expect,” given that “the UK economy is already operating below capacity,” the “Bank Rate at 3.75% is near the top of the BoE’s estimated 2% to 4% neutral range,” and “fiscal policy will likely turn more restrictive.” Together, these factors suggest scope for a dovish repricing that could leave the Pound vulnerable.

Chart Analysis GBP/USD

Technical Analysis: GBP/USD keeps a bearish vibe amid oversold condition

In the daily chart, GBP/USD extends a bearish tone as spot holds beneath all major referenced levels. The latest 20-period Bollinger Bands place price below even the lower limit of Bollinger band, while the middle Bollinger band and the 100-day simple moving average (SMA) reinforce a downside bias with the pair trading well under these structural markers. The Relative Strength Index (RSI) at 25.44 sits in oversold territory, hinting that while selling pressure is dominant, the pace of the decline could begin to moderate.

On the topside, immediate resistance emerges at the lower limit of Bollinger band near 1.3258, which now acts as the first hurdle for any corrective bounce. Above that, the 100-day SMA at 1.3428 and the Bollinger middle band at 1.3455 form a heavier resistance cluster that would need to be reclaimed to ease the current bearish pressure, with the upper boundary of Bollinger band further up at 1.3652 marking a more distant barrier. 

On the downside, the initial support level is located at the June 24 low of 1.3140, followed by the November 20, 2025 of 1.3038. Any follow-through selling below this level could expose the 1.3000 psychological level. 

(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

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.

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