As Republicans lose both US Houses, British Pound extends its rally

• Gains against the US Dollar lift the British Pound to a new seven-week high near 1.3500.
• Public dissatisfaction with Republican policies is clearly reflected in the Democrats’ win in both US houses.
• A Thursday interest rate increase by the BoE is widely expected.

Pressure on the US Dollar (USD) following the United States (US) Democrats’ victory in both houses of the federal legislature is driving GBP/USD higher. During Wednesday’s European session, the British Pound (GBP) reaches a new seven-week peak near 1.3500 against the US currency.

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

According to ING, the Democrats’ wins in the Senate and the House of Representatives have fuelled concerns over policy deadlock on matters including government funding and the debt ceiling, alongside tighter curbs on Artificial Intelligence (AI) spending.

Attention on the economic calendar now turns to September’s US ADP Employment Change and ISM Services PMI releases, both due during the North American session.

For the United Kingdom (UK), the next focus for investors is Thursday’s monetary policy announcement from the Bank of England (BoE).

Will firmer UK data prompt the BoE to begin tightening with a modest rate hike?

Thursday’s Bank of England decision and the accompanying Monetary Policy Report are in focus for strategists at Brown Brothers Harriman. They note that the BoE is “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” In their assessment, “firmer UK inflation and economic activity back the move,” while the vote split is “seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold,” indicating that some policymakers remain unconvinced that a fresh tightening cycle is necessary.

GBP/USD Technical Analysis: Can the Recovery Extend?

A continued recovery above the 20-period exponential moving average (EMA) at 1.3358 and the 50% Fibonacci retracement at 1.3406 keeps the daily chart’s bullish bias intact, with GBP/USD trading at 1.3473. The pair is now marginally above the 61.8% retracement at 1.3469, signalling an effort to regain higher levels. Meanwhile, a Relative Strength Index (RSI) reading of 64 points to solid upward momentum that has yet to reach extreme levels.

The 61.8% Fibonacci retracement at 1.3469 marks immediate resistance, followed by the 78.6% level at 1.3560 and the previous swing high near the 100% retracement at 1.3676. Initial support also lies at that 61.8% Fibonacci level of 1.3469. Below it, the 50% retracement at 1.3406 and the 20-period EMA at 1.3358 offer the next support levels. A sharper decline 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.)