Pound Firm as Markets Weigh BoE Rate Path and Fed Caution

Key Moments

GBP/USD Steadies as Markets Focus on Data and Central Banks

GBP/USD was little changed near 1.3330 during early European trading on Monday, with the pair confined below its 100-day simple moving average (SMA). The near-term outlook for the pair remained negative under this technical level, while the Relative Strength Index (RSI) stayed in bearish-leaning territory.

Investors were reassessing the trajectory of U.S. interest rates following comments by Federal Reserve (Fed) Chair Kevin Warsh. Attention was also turning to upcoming UK releases, with labor market data due on Tuesday and the UK Consumer Price Index (CPI) inflation print scheduled for Wednesday.

Fed Keeps Options Open Ahead of Late-October Meeting

At the 2026 IMF-World Bank annual meetings in Bangkok on Friday, the Fed Chair stated that he does not “prejudge” interest-rate decisions, offering no indication of whether the central bank would raise or hold short-term rates at the October 27-28 meeting.

According to the CME FedWatch tool, fed funds futures showed an implied 84% probability that the Fed would keep rates unchanged at the upcoming two-day policy meeting on October 28.

BoE Rate Path in Focus as UK Data Loom

UK data releases later in the week were expected to be pivotal for confirming expectations of a first Bank of England (BoE) rate increase in more than three years in November. “We expect a 25-basis-point hike at the central bank’s next meeting in November. We also see another move in February,” said Bloomberg Economics chief UK economist Dan Hanson.

MUFG: Pound Strength Conceals Consumer and Rate Risks

Analysts at MUFG highlighted that the Pound “continues to show resilience,” with recent indicators supporting expectations for further BoE tightening. They observed that the Pound was “roughly unchanged versus the US Dollar since the end of June,” noting that only the energy-linked CAD and NOK had done better, alongside the Yen, which had been supported by “yen buying intervention by the MoF, with assistance from the US.” Against this backdrop, MUFG argued that “the pound has done well on the back of improving sentiment and evidence of economic resilience.”

The bank pointed to stronger-than-forecast growth as a core support. MUFG stated that “the GDP data again was stronger than expected – the m/m gain of just 0.1% was modest but still better than expected, helping the 3mth/3mth rate to 0.7%, 0.2ppt stronger than expected.” They added that the three‑month performance “was helped by services activity,” though the “one-month reading was flat in August and could be a sign of weakening momentum.” Within services, the breakdown “showed consumer-facing weakness,” while a Bloomberg Intelligence survey “indicated vulnerabilities that could see a slowing in the months ahead.”

Credit trends were already reflecting mounting pressure on households. MUFG noted that the BoE’s quarterly Credit Conditions Survey “revealed an increase in defaults on credit card debt for the sixth consecutive quarter underlining the increased strains on UK consumers.” Despite that backdrop, “these exposures are increasing with consumer credit up GBP 2.5bn in August to a new record high.” MUFG warned that “if rates remain around these levels, it’s very likely that these figures will deteriorate further in the final quarter of the year.”

As a result, MUFG saw a disconnect between current data and the forward outlook. “So while the backdrop of the economic data has been positive, the outlook does point to increasing risks,” the bank wrote. It noted that “the OIS market indicates 100bps of tightening is priced by next September” but reiterated that “we continue to doubt the BoE delivering that, especially following the comments from Chief Economist Huw Pill who stated this week that he is sceptical that the UK will require four 25bp rate hikes.” Nonetheless, MUFG acknowledged that “it will be difficult for the markets to adjust lower given the global backdrop of higher rates.”

MUFG concluded that this configuration left the Pound sensitive to a shift in the global rate narrative. “In circumstances of a broader move back lower in rates, UK rates could fall more notably,” the bank argued, cautioning that “the pound remains vulnerable to signs that recent economic resilience could be undermined by the notable move higher in yields.”

Bailey’s Tone: Inflation Frustration Keeps GBP Supported, But With Restraint

FXS Speechtracker scored the latest remarks from BoE Governor Andrew Bailey at 6.2, slightly below his historical average of 6.4, suggesting a somewhat softer overall tone. Bailey’s irritation with persistent above-target inflation and his assessment that the economy is “more resilient than we expected, not as strong as we need” tilted modestly hawkish, as these comments implied a willingness to keep policy restrictive for longer.

However, his observation that it is “too early to form strong views on the strength of 2nd round effects” and that such effects are “subdued” with businesses concentrating on cost reductions softened the hawkish message. For GBP, this combination pointed to limited near-term upside: the currency drew support from elevated inflation concerns but remained constrained by caution over second-round effects and external drivers, including Middle East-related swings in UK gilt yields.

Technical Picture: GBP/USD Constrained Below 100-day SMA

On the daily chart, GBP/USD stayed under the 100-day SMA, maintaining a capped, slightly bearish short-term structure. The pair was trading just beneath the upper Bollinger Band, indicating that rallies were encountering supply. The RSI reading at 52.4 had shifted into neutral territory, suggesting that the recent rebound was losing momentum rather than developing into a more durable uptrend.

On the upside, first resistance was aligned with the upper Bollinger Band near 1.3335, ahead of a more significant barrier at the 100-day SMA at 1.3390. A daily close above 1.3390 could open the door to a move toward the September 9 peak at 1.3568.

On the downside, the middle Bollinger Band – the 20-day SMA around 1.3250 – acted as initial support, followed by the lower band close to 1.3165. A decisive break below 1.3165 could bring the November 20, 2025 low at 1.3038 into view.