Iran talks lift Pound to its highest level since mid-September

Trading above its 200-day average, GBP/USD moves past the October peaks.
Sterling's advance has little to do with the UK, says ING, as the Dollar retreats alongside Crude Oil.
A 7-2 vote is expected to take the BoE's Bank Rate to 4% on Thursday.

GBP/USD reached its strongest level since mid-September as the Dollar weakened alongside Crude Oil on optimism over a US-Iran agreement. After advancing to 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.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Traders unwound Friday's bets on a weekend attack and Crude Oil declined following reports that President Trump wants to allow diplomacy with Iran to run its course. According to an official briefed on the discussions, Qatari mediators are travelling to Tehran to discuss a draft US-Iran agreement. ING attributed the Pound's advance primarily to the Dollar's accompanying decline rather than developments in the UK.

Following the Pound's peak, losses in Crude Oil more than doubled as President Trump indicated that an agreement with Iran was possible. GBP/USD has since held within a 1.3400 to 1.3450 range. Nor did the pair react when the Institute for Supply Management (ISM) manufacturing index registered 55.5, above the forecast of 54.6.

Which upcoming events could matter?

With a rate increase fully priced in, attention turns to the voting split in the Bank of England's (BoE) Thursday decision at 12:00 GMT and Governor Bailey's comments at 12:30 GMT, neither of which is yet reflected in prices. Forecasts point to a 7-2 vote to lift the UK's Bank Rate from 3.75% to 4%. At the previous meeting, policymakers voted 6-3 to leave rates unchanged.

Tuesday brings the US midterm elections, followed by October Nonfarm Payrolls (NFP) at 13:30 GMT on Friday, with 65K expected after 29K. Before the jobs release, Cleveland Fed President Hammack is due to speak at 13:50 GMT on Thursday. She was one of two Fed voters supporting a rate increase on October 28. Both her comments and the employment figures will help shape whether the Fed raises rates after that decision to hold.

What do the charts indicate?

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

GBP/USD: 5-minute price chart

GBP/USD: daily price chart

Pound Sterling: frequently asked questions

What should you know about the Pound Sterling?

Issued by the Bank of England (BoE), the Pound Sterling (GBP) is the United Kingdom's official currency and the world's oldest, dating to 886 AD. Based on 2022 data, it ranks fourth globally by foreign exchange (FX) trading activity, representing 12% of all transactions and an average daily value of $630 billion. Among its main currency pairs, GBP/USD, known as ‘Cable’, accounts for 11% of FX trading. GBP/JPY, which traders call the ‘Dragon’, represents 3%, while EUR/GBP accounts for 2%.

Why do Bank of England decisions matter for the Pound Sterling?

Monetary policy set by the Bank of England is the most important influence on the Pound Sterling's value. In taking decisions, the BoE assesses whether it has met its main objective of “price stability”, meaning inflation steady at around 2%. Adjusting interest rates is its principal means of pursuing that objective. To curb excessively high inflation, the BoE will seek to raise interest rates, increasing borrowing costs for households and businesses. GBP generally benefits, since higher rates make the UK more attractive to international investors looking to invest their funds. By contrast, inflation that falls too low signals a slowdown in economic growth. The BoE will then consider cutting interest rates to make credit cheaper, encouraging businesses to borrow more for investment in projects that support growth.

Why does economic data move the Pound?

The Pound Sterling can respond to economic releases because they provide a measure of the economy's health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can determine GBP's direction. Sterling benefits from economic strength, which draws in more overseas investment and may prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic readings, on the other hand, are likely to push the Pound Sterling lower.

Why is the Trade Balance important for the Pound?

The Trade Balance is another key release for the Pound Sterling, showing the gap between a country's export earnings and its spending on imports during a specified period. Strong overseas demand for a country's exports supports its currency through the additional demand from foreign buyers purchasing those goods. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.