GBP/USD Price Forecast: Remains Firm Above 1.3400 as Key Support Underpins Positive Outlook

• At around 1.3405, GBP/USD is little changed in early European trading on Tuesday.
• Bullish RSI momentum supports the pair’s positive outlook as it holds above the 100-day SMA.
• Resistance initially stands at 1.3465, while 1.3385 provides the first support level.

With the Bank of England (BoE) interest rate decision and US September jobs data due later this week, alongside the US midterm elections, traders are holding back. GBP/USD is consequently little changed at around 1.3405 in Tuesday’s early European session.

At Thursday’s November policy meeting, the BoE is expected to lift Bank Rate from 3.75% to 4.0%. Such a move would mark the first increase since August 2023, when inflation was still above the BoE’s 2% target. Following the anticipated rise on Thursday, another increase in February is also likely, according to ING analysts. They nevertheless described market pricing for BoE rate increases as “looks extreme.”

For further indications of the UK interest rate outlook, traders will scrutinise the press conference. Hawkish comments from BoE Governor Andrew Bailey could provide near-term support for the British Pound (GBP) against the US Dollar (USD).

Pound gains may be constrained by guidance as BoE is expected to begin tightening

Thursday’s Bank of England policy decision and Monetary Policy Report will be the focus, according to strategists at Brown Brothers Harriman. They describe the BoE as “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” In their assessment, “firmer UK inflation and economic activity back the move,” with the expected voting split being “7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”

Market expectations are also in focus at BBH, which says that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months.” It cautions that “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside.”

BoE retains hawkish bias as Greene highlights stalled wage disinflation

A score of 7.4/10 on FXS Speechtracker puts the BoE’s Greene precisely in line with the historical average, indicating an unchanged but clearly hawkish position. Forward-looking pay growth of around 3.5% and unexpected economic resilience accompany her emphasis on wage disinflation having stalled above levels compatible with 2% inflation. Together, these points reinforce concerns that second-round inflation effects remain a significant risk.

A reluctance to support rapid policy easing is suggested by Greene’s call for proactive action against these second-round effects and her assessment that the risks are now greater than previously believed. Her suggestion that labour market slack may have peaked also implies that underlying wage pressures could endure. This combination is generally supportive of the Pound as markets price in a more sustained tightening bias from the BoE.

Technical Outlook: GBP/USD holds a positive bias above the 100-day SMA

On the daily chart, support for the near-term outlook comes from GBP/USD remaining above both the 100-day Simple Moving Average (SMA) and the 20-period SMA that forms the middle Bollinger Band. This follows the recent rebound from the lower band. At 57.9, the Relative Strength Index (14) has a positive bias but does not yet indicate overbought conditions. It suggests bullish momentum is continuing to build as the price nears the upper boundary of its recent volatility range.

The upper Bollinger Band, around 1.3465, provides the first resistance. Beyond that lies the 15 July high at 1.3558, with the 21 August peak of 1.3675 representing the next hurdle.

The 100-day SMA at 1.3385 offers immediate support. Below it, the middle Bollinger Band around 1.3320 comes into view, ahead of the 15 October low of 1.3184. Further selling beneath that level could bring the recent lower Bollinger Band low near 1.3172 into play. 

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