Sterling Stabilizes Against Dollar as Central Banks Meet

Key Moments

GBP/USD Steady Ahead of UK Retail Sales

GBP/USD is trading almost flat near 1.3360 in the early Asian session on Friday, with price action largely rangebound as market participants evaluate the latest policy decisions from the US Federal Reserve (Fed) and the Bank of England (BoE). Attention is turning to the release of UK August Retail Sales data, which is scheduled for later on Friday and could provide the next catalyst for the pair.

BoE Holds Bank Rate, Signals Rising Likelihood of Future Hike

At its September meeting on Thursday, the BoE’s Monetary Policy Committee (MPC) voted 6-3 to maintain the Bank Rate at 3.75%, even as inflation remains well above the central bank’s 2% objective. Policymakers indicated that the likelihood of a rate increase is growing. The three dissenting MPC members favored an immediate 25 basis point rise, which would have taken the Bank Rate to 4.0%.

Market pricing reflects expectations that the BoE will move at its next gathering, with a hike of at least 25 bps widely anticipated in November, according to LSEG data.

Fed Delivers First Rate Hike Since 2023

In contrast, the Fed implemented a quarter-point increase on Wednesday, raising its benchmark rate to a range of 3.75% to 4.0%. This move marked its first rate hike since 2023. Fed Chair Kevin Warsh underscored the central bank’s concern about persistent price pressures, stating that “the plain fact is that inflation is too high and has been for too long.” He also commented that “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

Derivatives pricing shows that traders are now assigning nearly a 53.1% chance of another Fed increase at the October meeting, up from nearly 44% just one day earlier, according to the CME FedWatch tool.

Sentiment Toward Pound Supported by BoE Stance and Fiscal Outlook

Analysts at Scotiabank observe that the British currency is extending recent gains following the BoE’s latest decision. They note that the Pound is “seeing marginal strength vs. the USD and extending its modest recovery in the aftermath of the BoE’s hawkish hold.” According to the strategists, “yield spreads appear to be offering renewed support to the GBP following their recent pullback, as markets signal additional confidence in the UK’s fiscal outlook in response to the PM Burnham’s budget comments.”

Technical Picture: GBP/USD Pressured Below Layered Resistance

From a technical standpoint, GBP/USD maintains a bearish short-term tone on the daily chart, as the spot rate remains beneath a cluster of volatility and trend indicators. The pair is trading below the 20-day Bollinger simple moving average and is constrained by the lower Bollinger band, while the 100-day moving average at 1.3438 is exerting additional medium-term resistance.

The Relative Strength Index (14) stands at 31.3, hovering near oversold territory. This suggests that selling pressure is extended, but price has yet to demonstrate a decisive recovery through key resistance levels.

On the upside, initial resistance is seen at the lower Bollinger band around 1.3365, followed by the 100-day moving average at 1.3438, which reinforces the broader bearish configuration. Above these levels, the Bollinger middle band at 1.3515 and the upper band near 1.3670 represent subsequent resistance zones that buyers would need to clear to alleviate the prevailing downtrend. With no explicit support levels highlighted by the cited indicators below current prices, GBP/USD remains exposed to further downside while it trades under this stacked resistance area.