British Pound posts modest gains against weaker USD ahead of this week's closely watched FOMC meeting

GBP/USD returns to gains as the new week begins, supported by several favourable factors.
BoE rate-rise expectations support GBP, while lower US bond yields restrain the USD rebound.
Ahead of key central bank and data risks, Middle East tensions and a hawkish Fed may cushion USD declines.

GBP/USD draws dip-buying interest near 1.3360. During Friday's Asian session, these purchases halt last week's modest retreat from the highest level since 16 September. With attention fixed on this week's key central bank event, however, bulls may hold off on new positions until the pair sustains a move above 1.3400 and establishes itself there.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Wednesday brings the US Federal Reserve (Fed) decision, with interest rates expected to remain unchanged after the two-day policy meeting. No updated economic projections will be available. Traders will therefore examine the accompanying policy statement and comments from Fed Chair Kevin Warsh at the post-meeting press conference closely. Thursday's major US economic releases, the Advance Q3 GDP reading and the Personal Consumption Expenditures (PCE) Price Index, will also shape expectations for the Fed's policy trajectory. That outlook will guide demand for the US Dollar (USD), giving GBP/USD a meaningful directional driver.

A sharp recent fall in US bond yields is constraining the USD's attempted rebound from the three-week low reached last Thursday. By contrast, the British Pound (GBP) remains supported by growing expectations that the Bank of England (BoE) will tighten monetary policy. Stronger-than-forecast UK inflation and resilient labour market readings have reinforced those expectations. Markets now assign roughly a 95% probability to a 25-basis-point (bps) BoE rate increase at its next meeting on 5 November. This supports GBP/USD and strengthens the case for a continuation of its recent solid recovery from the nearly four-month low recorded on 14 October.

Investors nevertheless continue to price in a nearly 80% chance of a US central bank rate increase in December. Geopolitical risk premiums also remain firmly in place as US-Iran peace talks stall. In a further development on Sunday, Yemen's Iran-backed Houthis threatened to continue attacks on Saudi Arabia's King Khalid Airport in Riyadh. These factors could cushion the safe-haven US dollar and restrict GBP/USD gains. It would therefore be prudent to wait for a sustained move and consolidation above 1.3400 before initiating fresh bullish positions. Even so, the favourable fundamental backdrop indicates that corrective declines could attract buyers.

GBP/USD: daily price chart

1.3403: Key GBP/USD Technical Threshold

At 1.3390, the 100-day Simple Moving Average (SMA) sits just above GBP/USD, alongside the 50.0% Fibonacci retracement at 1.3403. Closing a day above 1.3403 would clear a path to the 61.8% retracement at 1.3466, followed by 1.3556.

Initial downside support lies at 1.3341, the 38.2% retracement. Below that, the 23.6% level at 1.3263 could draw greater buying interest. If the pair breaks below 1.3263 on a sustained basis, the structural Fibonacci anchor at 1.3137 would come into view.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling: Key Questions

Pound Sterling: what are its key features?

Dating from 886 AD, the Pound Sterling (GBP) is the world's oldest currency and serves as the United Kingdom's official currency. Figures for 2022 put it fourth globally by foreign exchange (FX) trading activity. It represents 12% of all transactions, with daily turnover averaging $630 billion. Among its main currency pairs, GBP/USD, known as ‘Cable’, accounts for 11% of FX trading. GBP/JPY, which traders call the ‘Dragon’, represents 3%, while EUR/GBP accounts for 2%. Issuance of the Pound Sterling is the responsibility of the Bank of England (BoE).

Bank of England decisions: how do they affect Sterling?

Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling's value. Policy decisions depend on whether the BoE has met its main objective of “price stability”, meaning inflation holding steady at around 2%. Adjusting interest rates is its principal means of achieving that objective. To curb excessive inflation, the BoE raises rates, increasing borrowing costs for households and businesses. GBP generally benefits because higher rates make the UK a more attractive destination for international investors' funds. Conversely, inflation that drops too low signals weaker economic growth. The BoE will then consider cutting rates to reduce credit costs, encouraging businesses to borrow more for investment in projects that generate growth.

Economic indicators: what drives movements in GBP?

By measuring economic health, data releases can affect the Pound Sterling's value. GDP, Manufacturing and Services PMIs, and employment indicators can each help determine GBP's direction. Economic strength supports Sterling by attracting additional foreign investment. It may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic readings, by contrast, are likely to weigh on the Pound Sterling.

Trade Balance: why does it matter for the Pound?

The Trade Balance is another important release for the Pound Sterling. Over a specified period, it records the difference between a country's export earnings and its spending on imports. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.