British Pound posts modest gains above 1.3450 as BoE rate decision approaches

• Buying interest lifts GBP/USD towards 1.3485 during Asian trading on Thursday.
• Control of the Senate and House of Representatives goes to Democrats following the US midterm elections.
• The Bank Rate is set to rise from 3.75% to 4% as the BoE prepares for its first increase since August 2023.

A softer US Dollar (USD) supports the British Pound (GBP), lifting GBP/USD towards 1.3485 in Thursday’s Asian session after Democrats secured a sweeping victory in the US midterm elections. Market attention now turns to the Bank of England (BoE), which announces its interest rate decision later on Thursday.

Pressure on the Greenback followed Tuesday’s midterm elections, in which Democrats secured substantial majorities in both the Senate and House of Representatives. The outcome has eased worries over disputed results.

An increase in the Bank Rate from 3.75% to 4.0% is widely anticipated on Thursday, marking the BoE’s first rate hike in three years. For further guidance on the UK interest rate trajectory, traders will scrutinise the press conference by BoE Governor Andrew Bailey.

Beyond a rate increase this month, financial markets are factoring in at least a three-quarter-point hike next year. This would put UK interest rates above the levels projected for the US.

Hetal Mehta, chief economist at wealth managers St James's Place, said, "I think they will have pushed through with a hike," before adding: “A pickup in energy prices a couple of months ago and more recent signs of resilient economic growth are likely to have tipped the balance on the MPC,”

Can GBP/USD’s Break Above the 200dma Help the BoE Curb Inflation as the Pound Extends Gains?

For GBP/USD, analysts at Societe Generale see evidence of short positions being unwound, observing that “the acceleration to a 7-week high above the 200dma (+2.7% since mid-October) demonstrates how the accumulation of short positions before the Budget last month are now being unwound.” Their assessment also suggests that “further gains could lie ahead if history is any guide, helping the BoE in its battle to contain inflation.” Describing Cable’s trading, the bank cites a “GBP/USD: 1.3408 - 1.3484 overnight range,” alongside “Cable in the clear above 200dma, up to 7-week high on US election and short covering,” and identifies “support 1.3390, resistance 1.3535.” Turning to options, Societe Generale highlights strikes of “1.3365 (£630m), 1.3450 (£570m),” and, for EUR/GBP, “0.8330 (€1.5bn), 0.8365-75 (€3.8bn).”

In UK rates, Societe Generale records “10y IRS -3bp to 4.797%, inside yesterday’s range,” and gives levels of “support 4.71%, resistance 4.93%.” The bank again stresses that “sustained appreciation in cable (+2.7% from mid-October low) will help to contain inflation,” while describing the gilt sale as follows: “Green 2037 gilt auction yesterday [was] well received: b/c 3.38x, small tail of 0.3bp.”

Will Logan’s Call for at Least Two More Hikes Keep Dollar Bulls in Control?

Dollar bulls received support from Fed’s Logan, whose notably hawkish remarks earned an FXS Speechtracker score of 8/10, slightly higher than the historical average of 7.7/10. That reading points to a firmer position than the established baseline. Logan’s argument that the Fed “needs at least two more quarter-point rate hikes” was accompanied by the message that skipping a meeting would not change the policy destination. Together with the assessment that it is “unacceptable” for inflation not to be on track to 2%, the remarks indicate a clear resolve to move policy into modestly restrictive territory, despite robust growth and financial conditions tightening only gradually. The focus on a gradual approach and a clearly defined end-point indicates a preference for keeping rates higher for longer. Such a path should support the Dollar, particularly if markets had anticipated an earlier pause.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.62, leaving it comfortably above the neutral 100 mark and confirming a firmly hawkish broader policy backdrop. Read alongside the high FXS Speechtracker score, the rise indicates that Fed messaging remains tilted towards further tightening. This combination usually favours the Dollar relative to lower-yielding currencies.

Technical Analysis: Can GBP/USD Retain Its Bullish Bias Above the 100-Day SMA?

Near-term sentiment for GBP/USD remains bullish on the daily chart, with the pair trading above both the 100-day simple moving average (SMA) and the Bollinger middle band. Trading in the upper half of the Bollinger envelope coincides with a Relative Strength Index (14) reading of 65.3. This signals solid positive momentum approaching overbought territory, implying that upward pressure remains in place but could soon lose steam.

A decisive move above immediate resistance at the Bollinger upper band, near 1.3505, would create room for additional gains. If the pair retreats, the first support lies at the 100-day SMA of 1.3390, ahead of the Bollinger middle band around 1.3345. A deeper reversal of the current rally would bring the lower band near 1.3185 into view as a more distant bearish target.

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