British Pound approaches Bank of England hike with further tightening already priced in

• Above its 200-day average, GBP/USD heads towards a fifth consecutive gain.
• Thursday’s BoE decision is expected to deliver a rise to 4.00% by a 7-2 vote.
• Four BoE rate rises are priced in by September 2027, including Thursday’s expected move.

A rise in the UK’s Bank Rate from 3.75% to 4.00% is expected from the Bank of England (BoE) on Thursday, with money markets pricing in three further increases thereafter. Meanwhile, GBP/USD is heading for a fifth consecutive gain, trading just above 1.3400 and its 200-day Exponential Moving Average (EMA). Any further support for the Pound from Thursday’s meeting rests on the guidance rather than the rate decision itself.

A 7-2 vote requires four of September’s six hold voters to switch sides

At the September 17 meeting, Chief Economist Pill and external members Greene and Mann were the three members of the BoE’s nine-strong committee who backed a rate rise. Although BoE Governor Bailey and Deputy Governors Breeden, Lombardelli and Ramsden opted to hold, they said persistently high energy costs could make a stronger case for an increase. The forecast depends on those four changing their votes. If delivered, the rise would be the BoE’s first since August 2023.

A continued preference for unchanged rates from external members Dhingra and Taylor underpins BBH’s 7-2 forecast. Nomura, by contrast, anticipates another 6-3 split, but with the six now backing the opposite outcome. A smaller majority for a rise could suggest less willingness to deliver the three subsequent increases priced in by markets, expectations that have supported GBP/USD’s advance.

Markets price in four rate rises while most banks expect two

Four quarter-point increases by September 2027 are fully reflected in money-market pricing, LSEG data show, implying a Bank Rate of 4.75%. A Thursday rise is expected by 27 of 30 research houses. Most of those foresee a further increase in February before rates peak at 4.25%. In contrast, BMO’s Mark McCormick anticipates a single rise, while ING has described market pricing as extreme.

Despite Governor Bailey’s warning 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 priced over the next 12 months, limiting the Pound’s upside. Should the Monetary Policy Report favour a February increase followed by a pause, some of those expectations could unwind, likely pushing GBP/USD lower.

Both Fed dissenters backed the quarter-point rise expected from the BoE

September’s US job openings reached 7.523 million, above the 7.13 million forecast, while factory orders increased by 1.8%, exceeding expectations of 1.2%. Minutes before these releases, GBP/USD had set its session high just below 1.3450; it has remained beneath that level since. Earlier, on October 28, the Fed kept its rate at 3.75%-4.00%, with Fed Governor Cook and Cleveland Fed President Hammack dissenting in favour of a quarter-point increase.

Reports of progress in US-Iran negotiations sent Brent down towards $104 a barrel, following a statement from Iran’s negotiating team that there had been no new development. Much of September’s upside inflation surprise, which took UK inflation to 3.5%, came from petrol and diesel. Lower Brent prices offer the one route by which the case for BoE tightening could weaken before Thursday without a vote being cast.

BoE decision falls between Wednesday’s ADP figures and Friday’s payrolls

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. As one of October’s two dissenters, she will be speaking 110 minutes after the BoE has voted on the increase she favoured for the US. On Friday, Chief Economist Pill will brief businesses.

Before that, Wednesday brings the US Automatic Data Processing (ADP) private employment figure at 13:15 GMT, with a slowdown to 69K from 90K forecast. At 15:00 GMT, the Institute for Supply Management (ISM) services survey is expected to register 54.8, following 54.9. Attention then turns to Friday’s Nonfarm Payrolls (NFP), due at 13:30 GMT: forecasts point to 65K after 29K and an unemployment rate of 4.2%. All these releases will inform the Fed’s December decision, shaping the Dollar side of the interest-rate differential behind GBP/USD.

Results from the midterm elections begin arriving on Wednesday. Prediction markets put the likelihood of Democrats taking the Senate at close to 75%, and Reuters reported that traders were avoiding large Pound positions ahead of the results. Friday also brings speeches from New York Fed President Williams at 09:30 GMT and Fed Vice Chair for Supervision Bowman at 17:15 GMT, before and after payrolls respectively.

Pound approaches BoE vote with 1.3450 capping gains

Resistance: Just below 1.3450, Monday’s peak marks GBP/USD’s highest level since September 16. Tuesday’s entire trading range sits within Monday’s range. Beyond that peak lies 1.3500, the level from which the pair retreated on September 16, when the Fed raised rates.

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

Bias: A short bias is favoured beneath 1.3450 ahead of Thursday, as market pricing implies more BoE tightening than most research houses anticipate. A daily close below the 200-day EMA would expose 1.3300, followed by 1.3250. Near 85, the daily Stochastic Relative Strength Index (Stoch RSI) is overbought and beginning to turn lower. Conversely, a daily close above 1.3450 would clear Monday’s peak and invalidate the short case.

Daily chart for GBP/USD