Near 1.3400: British Pound slips ahead of US midterm elections

• 1.3405 is the level approached as GBP/USD eases in early Asian trading on Tuesday.
• A Democratic victory in the House of Representatives is widely anticipated.
• A Bank Rate increase to 4.0% is likely at the BoE’s November meeting on Thursday.

1.3405 is the level GBP/USD approaches as its four-day winning run ends. The pair retreats during early Asian trading on Tuesday. With US midterm elections, the Bank of England (BoE) rate decision and US September employment figures ahead, markets may adopt a cautious stance during a catalyst-heavy week.

Inflation and deficit concerns could return to the centre of the broader market narrative as the US midterm elections unfold. Traders will assess what the results mean for the market outlook. Forecasts currently favour a Democratic victory in the House, but the outcome in the Senate remains less certain.

According to economists from Reuters, investors anticipate tighter regulation and oversight of Artificial Intelligence (AI) if Democrats secure both the House and Senate. Such an outcome could weigh on financial markets.

A Democratic House alongside a Republican-controlled Senate would probably have mixed implications for the US fiscal outlook. A Republican sweep, by contrast, could lead the administration to pursue additional tax reforms or higher defence spending, investors expect. Either could expand the country’s already sizeable budget deficit.

At Thursday’s November policy meeting, the BoE is expected to increase the Bank Rate from 3.75% to 4.0%, according to economists surveyed by Reuters. That would mark the first rate rise since August 2023, when inflation remained above the BoE’s 2% target. For signals on the UK rate outlook, traders will scrutinise the subsequent press conference. Hawkish remarks from BoE Governor Andrew Bailey could lend the British Pound (GBP) some support against the US Dollar (USD).

4.00% expected as BoE starts tightening; guidance could constrain Pound gains

Thursday’s Bank of England decision and Monetary Policy Report are widely anticipated to usher in a fresh tightening phase, according to strategists at Brown Brothers Harriman. They describe the BoE as “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” Supporting that assessment, they note that “firmer UK inflation and economic activity back the move,” with a “vote split…seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”

The outlook beyond that first step may be more restrictive for Sterling gains. BBH warns that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months.” The strategists argue that “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside,” implying that an initially supportive rate increase could be offset by a policy message that challenges the market’s more aggressive rate assumptions.

8/10 hawkish score: Logan’s call for further Fed hikes supports Dollar bulls

An FXS Speechtracker reading of 8/10 puts Fed’s Logan slightly above the historical average of 7.7/10, reflecting a distinctly hawkish message and a firmer position than the established baseline. Logan maintains that the Fed “needs at least two more quarter-point rate hikes” and that skipping a meeting leaves the policy destination unchanged. Alongside robust growth, resilient consumer spending and a labour market ranging from balanced to tightening, that message reinforces a commitment to keeping policy “modestly restrictive” until inflation is clearly returning to 2%. A focus on gradual adjustments and clear communication points to steady tightening, giving households, businesses and investors time to adjust. This sustains a supportive environment for the Dollar.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.62. The reading remains decisively hawkish and aligns with the above-baseline FXS Speechtracker score. The index’s advance confirms that markets view Logan’s comments as pointing to further policy action, a setting that typically supports the Dollar against the Euro and Yen.

100-day SMA underpins GBP/USD’s positive tone: Technical Analysis

Trading above the 20-period Bollinger middle band and the 100-day simple moving average (SMA) leaves GBP/USD with a bullish near-term outlook on the daily chart. The pair is pushing into the upper half of the Bollinger envelope. Meanwhile, the Relative Strength Index (14), at about 58, signals positive momentum without indicating overbought conditions. Buyers therefore appear to retain the advantage while the pair holds above these key moving-average supports.

Near 1.3465, the upper Bollinger band provides the first resistance. A loss of buying momentum there could prompt a pause or reversal in gains. Initial support lies around 1.3385 at the 100-day SMA, ahead of the Bollinger middle band near 1.3318. A more pronounced retreat would likely find a floor before reaching the lower Bollinger band around 1.3175.

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