Two-week highs: British Pound pulls back despite upbeat UK manufacturing activity

• 1.3430 support comes under test in GBP/USD. The pair is revisiting previous highs after its advance stalled just short of 1.3450.
• The UK S&P Global Manufacturing PMI confirmed October’s expansion was the sector’s fastest in five months.
• Modest selling pressure persists on the US Dollar as markets focus on the US midterm elections.
  

GBP/USD is testing support around 1.3420 at the time of writing. The area marks previous highs, with the pair retreating from a session peak a few pips below 1.3450. The British Pound (GBP) retains modest gains against the US Dollar (USD) on Monday. However, it has pulled back from the two-week highs reached earlier in the day, despite confirmation of robust UK manufacturing activity in October.

Released earlier in the day, the final UK S&P Manufacturing Purchasing Managers’ Index (PMI) matched the preliminary estimate. October’s reading of 52.8, up from 51.9 in September, marked the strongest pace of activity growth in five months.

A quarter-point increase in the Bank of England’s Bank rate to 4.0% following Thursday’s monetary policy meeting is supported by these figures. The outlook beyond that remains in question. The bank’s committee is divided over additional monetary tightening, while Governor Bailey has tended to downplay inflation pressures in recent months.

US midterm election risks weigh modestly on Dollar

Lower Oil prices have encouraged a mild risk-on tone on Monday, leaving the US Dollar under modest selling pressure despite a recovery from session lows. Uncertainty over the US election outcome is also proving a significant obstacle for the currency.

The latest Polymarket odds point to “high expectations that the Republicans will lose control of Congress, and the Democrats could even take both the House and Senate.” That is the assessment of analysts at MUFG/BTMU. They add that “losing control of the House and Senate would effectively leave President Trump as a lame duck,” while a “damaging defeat for the Republicans could put a dampener on US Dollar strength,” although “we don’t expect it to be a game changer on its own.”

Ahead of the elections, Monday’s US ISM Manufacturing PMI release is expected to indicate a modest acceleration in business activity in October. The prices subindex is forecast to ease while remaining elevated. Such figures reinforce the case for strong US economic growth and are likely to limit further US Dollar weakness.