Below mid-1.3200s: British Pound trades sideways near multi-week low against firm USD

• USD strength leaves GBP/USD struggling to stage a meaningful rebound.
• The USD remains supported by growing expectations of Fed rate rises and risks in the Middle East.
• Sterling gains no traction from expectations of another BoE rate rise in December.

GBP/USD is consolidating near 1.3230. During Friday’s Asian session, the pair remains close to its lowest level in more than four weeks as the US Dollar (USD) holds a bullish tone.

Near its April 2025 highs, the USD Index (DXY) remains firm as expectations of Federal Reserve (Fed) rate rises strengthen and uncertainty persists in the Middle East. The index measures the Greenback against a basket of currencies. October’s stronger-than-expected US consumer inflation figures prompted several Fed officials to take a more hawkish stance, reinforcing market expectations of additional policy tightening. Traders have also begun pricing in the possibility of an outsized 50-basis-point (bps) Fed rate rise in December. This has driven the benchmark 10-year US government bond yield back above 5%.

8.3/10 hawkish score: Daly flags AI inflation risks as Fed tightening bias persists

At 8.3/10, Fed’s Daly’s FXS Speechtracker score is well above the historical average of 6.5/10. Her markedly more hawkish tone highlights heightened concern over persistent inflation, despite optimism about technology-led productivity gains. On AI, her central point is that the current technology boom and extensive AI pipeline are not the main sources of today’s inflation and have had limited impact on the labour market. Even so, AI-driven price pressures and the prospect of higher future inflation leave no room for Fed complacency. Her focus on sticky services inflation, support for a September rate rise and preference for further tightening underline a policy stance firmly directed at lowering inflation. Potential productivity gains could eventually help curb inflation, but remain a future consideration.

A 1.01-point rise took the FXS Fed Sentiment Index to 147.55. The reading remains firmly hawkish, indicating a stronger tightening bias in recent Fed communications. Alongside the high FXS Speechtracker score, the increase suggests markets should continue to price in a supportive environment for the Dollar. Tighter financial conditions are viewed as consistent with the Fed’s required policy stance.

In a Truth Social post, President Donald Trump said the US no longer needs a deal with Iran and that those days are long past. Continued attacks on Saudi Arabia’s energy infrastructure and commercial vessels in the Strait of Hormuz also sustain the geopolitical risk premium. This is viewed as an additional source of support for the safe-haven Greenback, keeping pressure on GBP/USD. Sterling could, however, find support from expectations that the Bank of England (BoE) will deliver a back-to-back 25 basis point (bps) rate rise at its next policy meeting on 17 December.

With buying interest absent, caution is warranted before positioning for a rebound. Those taking a bearish view may wait for GBP/USD to break below 1.3200 before initiating fresh positions. The pair nevertheless looks set for a second consecutive weekly loss, with its direction still dependent on USD price movements.

4-hour chart: GBP/USD

Technical outlook

Below the 200-period Simple Moving Average (SMA) on the 4-hour chart, GBP/USD retains a bearish near-term bias after breaking through horizontal support at 1.3280 overnight. To alleviate pressure on the negative outlook, bulls would need a sustained rebound above the 200-SMA at 1.3315. If the pair cannot regain that level, it will remain exposed to further declines.

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