
Sterling finds some support against the US Dollar (USD) from a hawkish Bank of England (BoE) rate increase, lifting GBP/USD towards 1.3385 in early European trading on Monday. The move lends support to the British Pound (GBP).

For the first time in over three years, the UK central bank raised its benchmark interest rate, increasing it by 25 basis points (bps) to 4.00%. According to BoE Governor Andrew Bailey, the Middle East war and the resulting rise in energy prices are the principal considerations for future rate decisions.
Although oil prices declined as markets reacted to the US midterms, Bailey said this would not have altered the decision. He acknowledged, however, that it "obviously" affects his assessment of the outlook.
The BoE’s growth and inflation forecasts now put growth this year at 1.6% and next year at 1.3%, following upward revisions. Both projections are stronger than those of the government's Office for Budget Responsibility.
A further round of BoE tightening brought a rate increase of "25 bps to 4.00%, matching the upper bound of the 3.75-4.00% Fed Funds Rate range.", analysts at ABN Amro point out. They describe strong committee backing, with "eight members" supporting the decision and "one preferred a 50-bps increase," highlighting the continuing hawkish bias.
Geopolitics remains an important condition shaping the BoE’s policy trajectory, according to ABN Amro. The bank notes that the MPC "projected inflation to reach around 5% by mid-2027 and signalled another increase unless the Middle East conflict is resolved,".
A more guarded message, delivered with less conviction, is indicated by FXS Speechtracker’s score of 4.2/10, markedly below Pill’s historical average of 6.4/10. The speech emphasises that next year’s interest rates are not predetermined and rules out a preset rising trajectory from spring. This represents a dovish turn from the tightening bias implied earlier.
Downside risks for the Pound are reinforced by the prospect of Bank Rate remaining unchanged, or even declining if growth falters, alongside the emphasis on pressure on margins as a key determinant. Linking policy to corporate pressures and the growth outlook, this conditional approach encourages markets to scale back expectations of prolonged rate increases and reconsider carry trades that support the Pound.
GBP/USD faces a mildly bearish bias on the daily chart, with gains constrained just below the 100-day simple moving average (SMA). Prices remain in the upper half of the Bollinger envelope, while nearby support comes from the 20-day SMA, or middle band. At 52.5, the Relative Strength Index (14) is near neutral, suggesting consolidation rather than a clear continuation of the trend.
The 100-day SMA at 1.3395 presents the first resistance, ahead of a more substantial hurdle at the upper Bollinger band near 1.3490. Sustained buying beyond that barrier could take the pair towards the 15 July high of 1.3558.
The middle Bollinger band near 1.3355 provides the closest support, with the 28 October low of 1.3272 next in line. A sharper retreat would bring the lower Bollinger band around 1.3225 into focus.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Dating back to 886 AD, the Pound Sterling (GBP) is the world’s oldest currency and serves as the United Kingdom’s official currency. Figures for 2022 place it fourth among the most actively traded currencies in the foreign exchange (FX) market, with a 12% share of all transactions and average daily turnover of $630 billion. Among its principal pairs, GBP/USD, also called ‘Cable’, represents 11% of FX trading. GBP/JPY, referred to by traders as the ‘Dragon’, accounts for 3%, while EUR/GBP contributes 2%. The Bank of England (BoE) issues the Pound Sterling.
Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling’s value. Rate decisions depend on progress towards the BoE’s central objective of “price stability”, meaning inflation holding at around 2%. Adjusting interest rates is its main means of meeting that objective. To curb excessively high inflation, the BoE raises interest rates, increasing borrowing costs for households and businesses. GBP typically benefits because higher rates make the UK a more appealing destination for international investors’ funds. By contrast, inflation that is too low signals weakening economic growth. The BoE would then consider cutting rates to reduce credit costs, encouraging businesses to borrow more for investment in projects that generate growth.
By indicating the economy’s health, data releases can move the Pound Sterling. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that help determine GBP’s direction. Sterling benefits from economic strength, which draws greater foreign investment and may prompt the BoE to raise interest rates, directly bolstering GBP. Weak economic figures, on the other hand, are likely to weigh on the Pound Sterling.
The Trade Balance is another important release for the Pound Sterling. Over a specified period, it records the gap between a country’s export earnings and its expenditure on imports. Strong overseas demand for a country’s exports supports its currency through the additional demand generated by foreign buyers purchasing those goods. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.