Sterling Firms vs Softer Dollar as Markets Await Fed

Key Moments

Fundamental Overview

The GBP/USD pair started the new week on a firmer footing, regaining upward momentum on the back of several supportive drivers. A pullback in U.S. Treasury yields is restraining a broader U.S. Dollar recovery from a three-week low recorded last Thursday, while expectations for tighter Bank of England policy continue to underpin the British Pound.

During the Asian session on Friday, the pair drew buying interest around the 1.3360 area, halting last week’s modest retreat from its highest level since September 16. Market participants remain cautious, however, with many likely waiting for a clear break and sustained move above the 1.3400 handle before adding to bullish positions, as attention stays firmly fixed on this week’s central bank developments.

Focus on the Federal Reserve and U.S. Data

The U.S. Federal Reserve is set to announce its latest policy decision on Wednesday, at the conclusion of a two-day meeting. The Fed is anticipated to keep interest rates unchanged. With no updated economic projections on the agenda, investors will focus closely on the accompanying policy statement and on Fed Chair Kevin Warsh’s remarks during the subsequent press conference.

Beyond the Fed meeting, upcoming U.S. macro releases are also in the spotlight. Thursday’s calendar includes the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. These data points are expected to shape expectations for the Fed’s policy trajectory, influencing demand for the U.S. Dollar and, in turn, providing direction for GBP/USD.

At the same time, a sharp recent decline in U.S. bond yields is limiting attempts by the Dollar to extend its rebound from last week’s lows. This yield backdrop is helping cap the Greenback’s upside against major currencies, including Sterling.

BoE Expectations and Geopolitical Undercurrents

The British Pound continues to benefit from firm expectations that the Bank of England will pursue further tightening. Stronger-than-anticipated U.K. inflation figures and resilient labor market data have reinforced these views. Market pricing currently reflects roughly a 95% probability of a 25-basis-point BoE rate increase at the next meeting on November 5.

This policy outlook supports the case for an extension of the recent recovery in GBP/USD from the nearly four-month low reached on October 14. Nevertheless, there are factors that could counterbalance Sterling’s advantage. Investors are still assigning close to an 80% probability that the Federal Reserve will raise borrowing costs in December, which may offer underlying support to the Dollar.

Geopolitical risk also remains a significant element in the market environment. Peace negotiations between the United States and Iran are described as stalled, and tensions remain elevated. In further developments, the Iran-backed Houthis in Yemen threatened on Sunday that they will continue to attack Saudi Arabia’s King Khalid Airport in Riyadh. This ongoing risk premium is helping to underpin demand for the safe-haven Greenback and could restrict further near-term gains in GBP/USD.

Given this mix of supportive and limiting influences, many participants may prefer to see sustained strength and confirmation above the 1.3400 level before committing to new long positions in the pair. Even so, the current fundamental configuration suggests that any corrective dips may continue to attract buyers.

GBP/USD Technical Picture

On the technical front, GBP/USD is hovering just below the 100-day Simple Moving Average (SMA) at 1.3390 and a key Fibonacci barrier at the 50.0% retracement level located at 1.3403. A daily close above 1.3403 would expose the next upside target at the 61.8% retracement at 1.3466, followed by 1.3556.

On the downside, initial support is seen at the 38.2% Fibonacci retracement at 1.3341. Below that, additional support is aligned at the 23.6% level at 1.3263, an area where buying interest would be expected to strengthen. A decisive move under 1.3263 would turn focus toward the structural Fibonacci anchor at 1.3137.