Iran talks lift pound to highest level since mid-September

• Above its 200-day average, GBP/USD pushes past October’s highs.
• As Crude Oil retreats, the Dollar weakens; ING attributes little of Sterling’s advance to UK developments.
• Thursday’s BoE decision is expected to deliver a 7-2 vote to lift Bank Rate to 4%.

A decline in Crude Oil on hopes of a US-Iran agreement has been accompanied by Dollar weakness, lifting GBP/USD to its strongest level since mid-September. Having reached just below 1.3450, the pair surrendered roughly two-thirds of its rise from the session low. Trading has subsequently remained in the bottom half of the day’s range.

Reports that President Trump wants to allow diplomacy with Iran to run its course prompted a fall in Crude Oil, as traders unwound Friday’s bets on an attack over the weekend. According to an official briefed on the discussions, Qatari mediators are travelling to Tehran to discuss a draft US-Iran agreement. ING attributed Sterling’s advance chiefly to the Dollar’s decline alongside Crude Oil, rather than to developments in the UK.

After Sterling reached its high, the decline in Crude Oil more than doubled as President Trump said an agreement with Iran was possible. GBP/USD has since held within a 1.3400 to 1.3450 range. A reading of 55.5 for the Institute for Supply Management (ISM) manufacturing index, compared with a forecast of 54.6, also left the pair unmoved.

BoE decision, US elections and jobs data take centre stage

A 7-2 vote to increase the UK’s Bank Rate from 3.75% to 4% is forecast when the Bank of England (BoE) delivers its decision on Thursday at 12:00 GMT. At the previous meeting, the vote was 6-3 in favour of leaving rates unchanged. With a rise already fully priced in, the voting split and BoE Governor Bailey’s comments at 12:30 GMT remain the elements not yet reflected in market pricing.

Tuesday brings the US midterm elections, followed on Friday at 13:30 GMT by October Nonfarm Payrolls (NFP), which are forecast at 65K against the previous 29K. On Thursday at 13:50 GMT, Cleveland Fed President Hammack is due to speak. She was one of two Fed voters who favoured a rise on October 28. Both her comments and the employment figures will inform whether the Fed follows that decision to hold with a rate increase.

GBP/USD recovers half its decline as momentum eases

Roughly half of GBP/USD’s decline from its late-August peak below 1.3700 to the October 14 trough just below 1.3150 has now been recovered. The pair is trading above both its 50-day Exponential Moving Average (EMA), close to 1.3350, and its 200-day average near 1.3400, the area where it stalled around October 22. Having been overbought since around October 20, daily momentum is beginning to ease.

GBP/USD chart: 5-minute timeframe

GBP/USD chart: daily timeframe