Hawkish BoE outlook and subdued US Dollar lift British Pound

• British Pound advances as markets anticipate a hawkish BoE and further interest rate rises.
• US Dollar comes under heavy pressure as Middle East tensions subside and demand for safe havens fades.
• Robust US GDP and labour figures cushion USD declines as the likelihood of a Fed rate rise recedes.

GBP/USD trades near 1.3400. The pair is advancing for a third successive day in Friday’s Asian session, supported by British Pound (GBP) strength as markets take a hawkish view of the Bank of England’s (BoE) policy decision next week.

A 25-basis-point BoE rate increase in November, followed by a further rise in February, is expected by traders. Separately, UK Finance Minister John Healey outlined measures to tackle high energy prices and announced plans to raise rates on banks, gambling, savers, landlords and online shopping.

Reduced appetite for safe havens is also supporting GBP/USD by putting pressure on the US Dollar (USD), as hopes build for US-led diplomatic peace talks. With Middle East tensions easing, concerns over oil supplies and inflation have been tempered, reducing expectations of a Federal Reserve rate increase at its December meeting. Markets now assign a nearly 75% probability to a 25-basis-point rise, compared with 84.2% a day earlier.

Resilient US economic releases nevertheless provide a counterweight to the Dollar’s recent pressures. Supported by strong consumer spending growth of 3.8% YoY, preliminary Gross Domestic Product came in at 3.4% YoY, above the 3.2% forecast and Q2’s 2.2% reading. The Core PCE Price Index, the Fed’s preferred inflation measure, increased 3.1% YoY, matching expectations. Initial jobless claims also edged down to 194K, adding to evidence of an economy heating up and a tight labour market.

2% price stability pledge: Warsh reinforces hawkish stance, sustaining Dollar bulls

A 7/10 FXS Speechtracker score places Warsh’s press conference in line with the historical average, but his tone remains firmly hawkish. Repeated, unequivocal pledges to deliver 2% PCE price stability reinforce that message. His insistence that “ensuring price stability is not about a fixed date on a calendar” and that “new monetary medicine” is working points to a data-dependent yet determined anti-inflation position supportive of the Dollar. That stance is also reflected in his comfort with inflation expectations and tighter financial conditions. Comments on widening credit spreads, higher rates’ effects on technology and AI, and broadening capital expenditure indicate confidence that policy is taking effect without yet jeopardising the expansion. This leaves the Fed inclined to retain restrictive settings.

A +14.39-point jump took the FXS Fed Sentiment Index to 141.89, comfortably above the neutral 100 threshold and firmly within hawkish territory. The move aligns with the strong anti-inflation message recorded by the FXS Speechtracker. At this elevated level, the index underlines that markets should view Warsh’s comments as strengthening the higher-for-longer interest rate narrative, which typically favours the Dollar against the Euro and Yen.