British Pound inches higher against subdued USD as this week's FOMC meeting remains in focus

• A combination of supportive factors helps GBP/USD resume its advance as the new week begins.
• With US bond yields having fallen recently, the USD recovery remains constrained, while expectations of a BoE rate rise support the GBP.
• Ahead of the central bank decision and key data releases, Middle East concerns and a hawkish Fed could contain USD losses.

With this week's key central bank decision in focus, GBP/USD finds buyers on dips towards 1.3360 during Friday's Asian session. The buying halts last week's modest retreat from the pair's highest level since 16 September. Before taking fresh positions, however, bulls may look for a sustained move above 1.3400 and evidence that the pair can establish itself there.

Interest rates are expected to remain unchanged when the US Federal Reserve (Fed) concludes its two-day policy meeting and announces its decision on Wednesday. With no updated economic projections due, attention will centre on the accompanying policy statement and remarks from Fed Chair Kevin Warsh at the subsequent press conference. Thursday's Advance Q3 GDP release and Personal Consumption Expenditures (PCE) Price Index will also shape expectations for the Fed's policy path. Those expectations will, in turn, influence demand for the US Dollar (USD) and give GBP/USD fresh direction.

A sharp recent fall in US bond yields is restricting the USD's attempted recovery from the three-week low reached last Thursday. By contrast, the British Pound (GBP) remains supported by growing expectations that the Bank of England (BoE) will tighten monetary policy, following stronger-than-forecast UK inflation and robust labour market data. Markets currently put the probability of a 25-basis-point (bps) BoE rate rise at the next meeting on 5 November at roughly 95%. This supports GBP/USD and strengthens the case for the recent sizeable recovery from the nearly four-month low recorded on 14 October to continue.

Investors nevertheless continue to price in a nearly 80% chance of a December increase in US borrowing costs. A geopolitical risk premium also persists as US-Iran peace talks remain stalled. Adding to those concerns, Yemen's Iran-backed Houthis warned on Sunday that attacks on Saudi Arabia's King Khalid Airport in Riyadh would continue. These factors could cushion the safe-haven Greenback and restrain GBP/USD. It therefore remains prudent to await a sustained move above 1.3400, with the pair establishing itself beyond that level, before taking new bullish positions. Even so, the favourable fundamental backdrop suggests that a corrective decline could attract buyers.

GBP/USD on the daily chart

Technical Outlook

Resistance sits just above GBP/USD at the 100-day Simple Moving Average (SMA) of 1.3390 and the 50.0% Fibonacci retracement of 1.3403. Should the pair close a day above the latter, the 61.8% retracement at 1.3466 would come into view, followed by 1.3556.

The first support on a decline lies at the 38.2% retracement of 1.3341. Below that, the 23.6% level at 1.3263 is likely to attract greater buying interest. If a break below 1.3263 is sustained, the structural Fibonacci anchor at 1.3137 would be exposed.

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