British Pound approaches Bank of England hike with tightening priced in well beyond this move

• A fifth consecutive gain is in sight for GBP/USD as it trades above its 200-day average.
• Thursday's BoE decision is expected to deliver a rate increase to 4.00% by a 7-2 vote.
• Four BoE rate increases are priced into money markets by September 2027, including Thursday's move.

GBP/USD remains poised for a fifth consecutive advance, trading marginally above both 1.3400 and its 200-day Exponential Moving Average (EMA). On Thursday, the Bank of England (BoE) is expected to lift the UK's Bank Rate from 3.75% to 4.00%, with money markets already discounting three further increases. Any additional support for the Pound from Thursday's meeting therefore rests on the guidance rather than the rate decision itself.

Can four of September's six hold voters deliver the expected 7-2 split?

For the projected vote to materialise, BoE Governor Bailey and Deputy Governors Breeden, Lombardelli and Ramsden would all need to switch sides. Each backed an unchanged rate on September 17, while acknowledging that sustained energy costs could bolster the argument for an increase. Of the BoE's nine policymakers, Chief Economist Pill and external members Greene and Mann were the three who favoured a hike that day. A rate increase would be the central bank's first since August 2023.

A 7-2 outcome is BBH's forecast, based on external members Dhingra and Taylor continuing to favour a hold. Nomura, by contrast, anticipates another 6-3 split, but with the six now backing the opposite side. If a hike commands a smaller majority, markets could interpret that as weaker support for the three subsequent increases already priced in. Expectations for those three moves have been underpinning GBP/USD.

Why are markets pricing four hikes when most banks expect two?

LSEG data show that money markets have fully discounted four quarter-point increases by September 2027, implying a Bank Rate of 4.75%. Research forecasts are more restrained: 27 of 30 research houses anticipate a hike on Thursday, with most projecting just one further increase in February before rates peak at 4.25%. Mark McCormick at BMO sees a one-off increase, while ING has described market pricing as extreme.

Despite Governor Bailey's view that unconditional commitments on future rates are inappropriate, markets have priced in a year of increases without such a pledge. According to BBH, the guidance could challenge the full point of tightening discounted over the next 12 months, limiting the Pound's upside. If the Monetary Policy Report signals a February increase followed by a pause, some of those expectations could unwind. GBP/USD would likely decline in that scenario.

What links the Fed's two dissenters to the expected BoE hike?

GBP/USD reached its session peak just below 1.3450 minutes before the US data releases and has remained beneath that level since. September's US job openings climbed to 7.523 million, exceeding the 7.13 million forecast, while factory orders increased 1.8%, against expectations of 1.2%. Earlier, on October 28, the Fed left its rate unchanged at 3.75%-4.00%. Fed Governor Cook and Cleveland Fed President Hammack dissented in favour of a quarter-point increase, the same move now expected from the BoE.

Talk of headway in US-Iran negotiations pushed Brent down towards $104 a barrel, after Iran's negotiating team had said there were no new developments. Lower Brent prices offer one route for the case for a BoE hike to weaken before Thursday, without any policymaker casting a vote. Petrol and diesel accounted for much of September's inflation overshoot, when UK inflation climbed to 3.5%.

How do ADP and payrolls frame Thursday's BoE decision?

At 12:00 GMT on Thursday, the BoE will release its decision, minutes and Monetary Policy Report, followed by Governor Bailey's remarks at 12:30 GMT. Cleveland Fed President Hammack is scheduled to speak at 13:50 GMT, 110 minutes after the BoE has voted on the increase she had sought for the US as one of October's two dissenters. On Friday, Chief Economist Pill will brief businesses.

Before that, Wednesday brings the US Automatic Data Processing (ADP) private employment report at 13:15 GMT, with job additions expected to ease from 90K to 69K. At 15:00 GMT, the Institute for Supply Management (ISM) services survey is forecast to register 54.8, compared with 54.9 previously. Friday's Nonfarm Payrolls (NFP), due at 13:30 GMT, are projected at 65K versus 29K, while the unemployment rate is expected at 4.2%. All these releases will inform the Fed's December decision and, in turn, the Dollar side of the interest-rate differential driving GBP/USD.

With midterm results due from Wednesday, prediction markets put the probability of Democrats winning the Senate near 75%. Reuters reported that traders were avoiding large Pound positions ahead of the results. Friday also features remarks from New York Fed President Williams at 09:30 GMT and Fed Vice Chair for Supervision Bowman at 17:15 GMT, placing their appearances on either side of the payrolls release.

Which Pound levels matter ahead of the BoE vote?

Resistance: Tuesday's entire trading range sits within Monday's, whose high just below 1.3450 marks GBP/USD's strongest level since September 16. Beyond that high lies 1.3500, the level from which the pair reversed lower on September 16, when the Fed raised rates.

Support: Tuesday's decline stopped a few pips above the 200-day EMA, which lies just below 1.3400. Further down, the October 29 trough is at 1.3300. The October 28 low, just above 1.3250, marks the starting point of the five-session advance.

Bias: A short bias below 1.3450 is favoured heading into Thursday, as market pricing implies more tightening than most research houses expect the BoE to deliver. Should the daily close slip back below the 200-day EMA, 1.3300 would come into view, followed by 1.3250. Near 85, the daily Stochastic Relative Strength Index (Stoch RSI) is in overbought territory and beginning to turn lower. Conversely, a daily close above 1.3450 would clear Monday's peak and invalidate the short case.

Daily price chart: GBP/USD