British Pound gains further as Republicans lose control of both US Houses

• At around 1.3500 against the US Dollar, the British Pound reaches a fresh seven-week high.
• Clear public dissatisfaction with Republican policies is reflected in the Democrats’ victory in both US houses.
• Thursday is widely expected to bring an interest rate rise from the BoE.

A fresh seven-week high around 1.3500 marks the British Pound’s (GBP) advance against the US Dollar (USD) during Wednesday’s European trading. Heavy pressure on the US Dollar following the United States (US) Democrats’ victory in both houses of the federal legislature is supporting gains in GBP/USD.

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’ success in both the Senate and the House of Representatives has raised concerns about tougher restrictions on Artificial Intelligence (AI) spending, alongside potential decision-making deadlock over government funding and the debt ceiling.

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 is on Thursday’s monetary policy announcement from the Bank of England (BoE).

BoE expected to begin tightening with a modest rate rise as UK data strengthen

With Thursday’s Bank of England decision and accompanying Monetary Policy Report approaching, Brown Brothers Harriman strategists say the BoE is “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” The expected vote split is “seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold,” although the strategists note that “firmer UK inflation and economic activity back the move,” highlighting that some policymakers remain unconvinced of the need to embark on another tightening phase.

GBP/USD Maintains a Bullish Technical Bias

Trading at 1.3473 on the daily chart, GBP/USD retains a constructive bullish outlook. Its recovery has extended above both the 20-period exponential moving average (EMA) at 1.3358 and the 50% Fibonacci retracement at 1.3406. With the pair now just above the 61.8% retracement at 1.3469, it appears to be attempting to regain higher levels. A Relative Strength Index (RSI) reading of 64 points to solid upward momentum that has yet to reach an extreme.

The 61.8% Fibonacci retracement at 1.3469 provides immediate resistance, ahead of the 78.6% level at 1.3560 and the previous swing high near the 100% retracement at 1.3676. That same 61.8% Fibonacci level at 1.3469 also marks initial support on the downside. Below it lie 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 down, 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.)