British Pound slips from two-week highs even as UK manufacturing activity remains upbeat

• After stalling just below 1.3450, GBP/USD retests former highs near 1.3430 as support.
• October brought the fastest UK manufacturing expansion in five months, the S&P Global Manufacturing PMI confirmed.
• Attention centres on the US midterm elections as the US Dollar faces modest selling pressure.
  

Confirmation of robust UK manufacturing activity in October has not prevented the British Pound (GBP) from retreating from the two-week highs reached earlier on Monday, although it retains modest gains against the US Dollar (USD). At the time of writing, GBP/USD is probing support around the previous highs in the 1.3420 area, having slipped from a session peak a few pips below 1.3450.

October’s final UK S&P Manufacturing Purchasing Managers’ Index (PMI), published earlier in the day, matched the preliminary estimate of 52.8. Up from 51.9 in September, the reading marked the strongest pace of expansion in five months.

The figures lend support to expectations of a quarter-point increase in the Bank of England’s Bank Rate to 4.0% following Thursday’s monetary policy meeting. Less clear is the path thereafter: the bank’s committee remains divided over additional monetary tightening, while Governor Bailey has tended to downplay inflationary pressures in recent months.

US midterm election risks weigh modestly on the Dollar

Lower Oil prices have encouraged a mild improvement in risk appetite on Monday, while uncertainty surrounding the US election outcome presents a significant obstacle for the US Dollar. Although the currency has recovered from its session lows, it continues to face modest selling pressure.

Citing the latest Polymarket odds, MUFG/BTMU analysts point to “high expectations that the Republicans will lose control of Congress, and the Democrats could even take both the House and Senate.” The bank’s experts caution that “losing control of the House and Senate would effectively leave President Trump as a lame duck,” adding that a “damaging defeat for the Republicans could put a dampener on US Dollar strength,” albeit with the qualification that “we don’t expect it to be a game changer on its own.”

Ahead of the elections, Monday’s US ISM Manufacturing PMI release is expected to indicate a modest acceleration in business activity in October, alongside an easing in the prices subindex from elevated levels. Such figures reinforce the case for robust US economic growth and are likely to limit further US Dollar weakness.