Republicans lose both US Houses as British Pound extends gains

• Around 1.3500 marks a fresh seven-week high for the British Pound against the US Dollar.
• Public dissatisfaction with Republican policies is clear from the Democrats’ victory in both US houses.
• Thursday’s BoE decision is widely expected to deliver an interest rate increase.

Around 1.3500 marks a new seven-week high for the British Pound (GBP) against the US Dollar (USD). The level was reached during Wednesday’s European session. Driving the GBP/USD advance is heavy pressure on the US Dollar following the United States (US) Democrats’ victory in both chambers of the federal legislature.

At the time of writing, a 0.47% decline leaves the US Dollar Index (DXY) near 101.40. The index measures the Greenback against six major currencies.

According to ING, the Democrats’ wins in the Senate and the House of Representatives have raised concerns about decision-making gridlock over government funding and the debt ceiling, alongside tighter restrictions on Artificial Intelligence (AI) spending.

September’s US ADP Employment Change and ISM Services PMI releases are now the focus for investors on the economic calendar. Both are due during the North American session.

In the United Kingdom (UK), attention centres on Thursday’s monetary policy announcement from the Bank of England (BoE).

25bps BoE hike expected to open tightening cycle as UK data strengthens

A modest start to a new tightening cycle is the expectation highlighted by Brown Brothers Harriman strategists ahead of Thursday’s Bank of England decision and accompanying Monetary Policy Report. They describe the BoE as “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” In support, they note that “firmer UK inflation and economic activity back the move,” with the voting split “seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold,” indicating that some policymakers remain unconvinced that a new tightening phase is necessary.

1.3473 GBP/USD: Technical Analysis

At 1.3473 on the daily chart, GBP/USD retains a positive bullish bias. Its recovery has extended above both the 20-period exponential moving average (EMA) at 1.3358 and the 50% Fibonacci retracement at 1.3406. Trading marginally above the 61.8% retracement at 1.3469 points to an effort to regain higher levels. A Relative Strength Index (RSI) reading of 64 signals solid upward momentum that is not yet extreme.

The 61.8% Fibonacci retracement at 1.3469 marks immediate upside resistance. Beyond it, the next hurdles are the 78.6% level at 1.3560 and the previous swing high near the 100% retracement at 1.3676. Initial downside support also lies at the 61.8% Fibonacci level of 1.3469. Below that sit the 50% retracement at 1.3406 and the 20-period EMA at 1.3358. A more pronounced retreat would bring the 38.2% retracement at 1.3342 into view, followed by the 23.6% level at 1.3263. Further out, the cycle low around 1.3136 provides a structural floor.

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