British Pound gains as BoE policy week begins

• Ahead of Thursday’s BoE policy announcement, the British Pound has strengthened against its major counterparts.
• A 25 bps increase to 4% is widely expected when the BoE sets interest rates.
• Markets put the Democrats’ chances of winning both the House and the Senate at 70-72%.

A 0.3% rise against the US Dollar (USD) has taken the British Pound (GBP) towards 1.3430 at the start of the week, with sterling also gaining against most of its currency counterparts. Investors are closely awaiting Thursday’s monetary policy announcement from the Bank of England (BoE) as the pound advances.

Sterling stays supported as markets treat BoE rise to 4.00% as certain

Market confidence that high energy costs give the BoE “no alternative but to hike rates on Thursday” is supporting sterling, according to ING analysts, who describe the currency as “trading reasonably well,”. Their assessment that “a 25bp rate hike to 4.00% looks like a done deal,” underpins the positive tone towards the pound before the policy announcement.

Given financial markets’ continued conviction that the BoE will raise rates, the voting breakdown and guidance on monetary policy might attract particular attention from investors.

Ahead of Tuesday’s midterm elections in the United States (US), the US Dollar is under selling pressure. At the time of writing, a 0.3% decline has left the US Dollar Index (DXY) near 101.65. The index measures the greenback against six major currencies.

Dollar faces uncertainty as US midterm odds favour Democrat sweep

Betting markets assign the Democrats a “70-72% chance of taking both the House and the Senate.” ING’s Chris Turner highlights this week’s US midterm elections as the principal event risk for FX. In his assessment, “one could make the case that the Dollar should come lower on such an outcome,” since a Democrat sweep would probably “lead to gridlock on the debt ceiling, a prolonged government shutdown next year and could encourage President Trump to pursue an even more activist foreign policy agenda.” Turner suggests that investors will weigh those political risks against strong US growth, inflation above target and continued Fed tightening, a combination that remains supportive of the Dollar and DXY around 102.00.

GBP/USD Retains Bullish Technical Bias

Holding above both the 9-day Exponential Moving Average (EMA) at 1.3366 and the 50.0% Fibonacci retracement at 1.3408 of the 1.3138–1.3677 move, GBP/USD maintains a bullish near-term bias on the daily chart as it trades around 1.3430. A Relative Strength Index (14) reading near 60 points to solid positive momentum, supporting the upward bias without signalling overbought conditions.

The first resistance on the upside comes at 1.3471, the 61.8% Fibonacci retracement, followed by the 78.6% retracement at 1.3562. Should buyers extend the rally, the cycle high of 1.3677 would present a more substantial hurdle. Initial downside support lies at the 50.0% retracement of 1.3408, with the 9-day EMA at 1.3366 and the 38.2% retracement at 1.3344 next in line. A deeper retreat would bring the 23.6% retracement at 1.3265 and the structural anchor around 1.3138 into view.

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