British Pound posts modest gains above 1.3450 ahead of BoE rate decision

• With GBP/USD near 1.3485, the pair advances during Asian trading on Thursday.
• Control of both the Senate and House of Representatives passes to Democrats following the US midterm elections.
• A rise in the Bank Rate from 3.75% to 4% is expected from the BoE, marking its first increase since August 2023.

Ahead of the Bank of England (BoE) interest rate decision later on Thursday, GBP/USD advances towards 1.3485 in Asian trading. An overwhelming Democratic victory in the US midterm elections has left the US Dollar (USD) slightly weaker against the British Pound (GBP), while attention turns to the central bank’s announcement.

Tuesday’s midterm elections delivered substantial Democratic majorities in both the Senate and House of Representatives. With fears of disputed results easing, the Greenback has come under pressure.

Thursday is widely expected to bring the BoE’s first interest rate increase in three years, lifting the Bank Rate from 3.75% to 4.0%. For further indications of the UK interest rate outlook, traders will scrutinise the press conference by BoE Governor Andrew Bailey.

Beyond an increase this month, financial markets are pricing in at least a three-quarter-point rise next year. That path would leave UK interest rates above the levels projected for the US.

Hetal Mehta, chief economist at wealth managers St James's Place, said: "I think they will have pushed through with a hike," adding: “A pickup in energy prices a couple of months ago and more recent signs of resilient economic growth are likely to have tipped the balance on the MPC,”

GBP/USD advances above 200dma as stronger Pound supports BoE inflation efforts

The unwinding of short positions is central to Societe Generale analysts’ assessment of GBP/USD. They observe that “the acceleration to a 7-week high above the 200dma (+2.7% since mid-October) demonstrates how the accumulation of short positions before the Budget last month are now being unwound.” In their view, “further gains could lie ahead if history is any guide, helping the BoE in its battle to contain inflation.” Describing overnight trading, the bank cites a “GBP/USD: 1.3408 - 1.3484 overnight range,” alongside “Cable in the clear above 200dma, up to 7-week high on US election and short covering,” and identifies “support 1.3390, resistance 1.3535.” Societe Generale also highlights GBP/USD option strikes at “1.3365 (£630m), 1.3450 (£570m),” and EUR/GBP option strikes at “0.8330 (€1.5bn), 0.8365-75 (€3.8bn).”

Turning to UK rates, Societe Generale cites “10y IRS -3bp to 4.797%, inside yesterday’s range,” and places levels at “support 4.71%, resistance 4.93%.” The bank again stresses that “sustained appreciation in cable (+2.7% from mid-October low) will help to contain inflation,” while reporting that the “Green 2037 gilt auction yesterday [was] well received: b/c 3.38x, small tail of 0.3bp.”

Dollar bulls retain support as Logan signals at least two further rate rises

An 8/10 FXS Speechtracker score, modestly higher than the historical average of 7.7/10, reflected a notably hawkish message from the Fed’s Logan and a firmer position than the established baseline. Logan maintained that the Fed “needs at least two more quarter-point rate hikes” and that missing a meeting would not change the eventual policy destination. Combined with the judgement that it is “unacceptable” inflation is not on course for 2%, those remarks indicate a clear determination to move policy into modestly restrictive territory, despite robust growth and financial conditions tightening only gradually. A focus on gradual moves and a clearly defined end-point points to a preference for keeping rates higher for longer. That should support the Dollar, particularly if markets had been positioning for an earlier pause.

A gain of 0.95 points took the FXS Fed Sentiment Index to 143.62, leaving it comfortably above the neutral 100 threshold and confirming that the wider policy backdrop remains firmly hawkish. Together with the high FXS Speechtracker reading, the increase suggests that Fed communication still favours further tightening, a combination that typically lends support to the Dollar against lower-yielding currencies.

Technical Analysis: GBP/USD holds bullish bias above 100-day SMA

Holding above both the 100-day simple moving average (SMA) and the middle Bollinger band, GBP/USD retains a positive near-term bias on the daily chart. The pair is pushing into the upper half of the Bollinger envelope. Meanwhile, a Relative Strength Index (14) reading of 65.3 indicates solid positive momentum approaching overbought territory, implying that upward pressure remains in place but could soon begin to fade.

A decisive break above the upper Bollinger band, which provides immediate resistance near 1.3505, would create scope for additional gains. Initial support lies at the 100-day SMA of 1.3390, ahead of the middle Bollinger band near 1.3345. Should the current rise reverse more sharply, the lower band around 1.3185 would represent a more distant downside target.

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