British Pound seeks a foothold above 1.3400 as US Dollar remains weak

• A 1.4% gain over the past two weeks remains in sight as GBP/USD holds above 1.3400.
• A Fed pause next week and a BoE rate rise in early November are shaping market expectations.
• Uncertainty over the extent of the Fed’s tightening cycle weighs on the US Dollar.

With a 1.4% advance over the past two weeks in prospect, GBP/USD is trading at one-month highs just above 1.3400 on Thursday. The British Pound (GBP) continues to strengthen against a softer US Dollar (USD) as markets prepare for next week’s Federal Reserve (Fed) policy decision. In the UK, meanwhile, conditions favour a Bank of England (BoE) rate rise in November.

High energy prices are driving consumer inflation higher, Wednesday’s UK figures confirmed, increasing pressure on the BoE to raise borrowing costs. Figures for UK Gross Domestic Product (GDP) published last week also showed continued economic growth, making the decision easier for the central bank’s policymakers at their meeting on 5 November.

Further indications of the outlook for the next monetary policy meeting may emerge later in the day, when BoE Governor Andrew Bailey is expected to address central bank independence at the Official Monetary and Financial Institutions Forum (OMFIF).

US Dollar remains under pressure as markets assess the Fed’s tightening path

Lower US Treasury yields continue to weigh on the US Dollar. Investors consider a Fed interest rate rise at next week’s meeting unlikely and are assessing how far the tightening cycle will go following dovish-leaning remarks from Fed officials.

Declining to prejudge the October and December meetings, Fed Chair Warsh struck a cautious tone last week. Other Government Board members called for more time to evaluate the effects of September’s rate rise before increasing borrowing costs again.

ING analysts maintain a bullish view on the Pound. In a note, the Dutch bank says: “Greater market confidence in a Bank of England tightening cycle – we look for 25bp hikes in February and November – makes sterling a high-carry European currency,”