GBP/USD Drops to 1.3375 on Fed Hawkish Signals
The pound falls to 1.3375 as Fed hike odds rise to 56.5% and UK inflation risks persist.
Key points
- GBP/USD fell to 1.3375 as Fed hike odds reached 56.5% for October.
- The Bank of England held rates at 3.75% while warning of 4% inflation.
- Technical support is at 1.3355 with resistance near the 1.3435 moving average.
GBP/USD slipped to 1.3375 in early Monday European trading. This decline followed the US Federal Reserve’s decision to raise rates by 25 basis points. The central bank now targets a 3.75% to 4.00% benchmark range. Traders price in a 56.5% chance of another October hike. This hawkish stance directly pressured the British pound during the session.
The Bank of England held its rate steady at 3.75% last week. However, officials warned that UK inflation could exceed 4% early next year. J.P. Morgan analysts expect a 25 basis point hike in February. They also flag further tightening if geopolitical conflicts in Iran continue. These factors keep the pound under sustained selling pressure.
Fed Policy Drives Dollar Strength
The CME FedWatch tool shows a 56.5% probability for an October rate increase. This expectation strengthens the US dollar against the pound. The rate differential now favors American assets significantly. Investors shift capital toward higher-yielding US instruments. This flow reduces demand for British currency in foreign exchange markets.
UK Inflation Risks Persist
UK inflation projections remain above the central bank’s 2% target. The Bank of England sees rates near 3.75% as appropriate. Yet, persistent price pressures threaten future policy flexibility. J.P. Morgan warns that prolonged conflicts may force earlier tightening. This uncertainty dampens investor confidence in UK fiscal stability.
Scotiabank strategists note that political confidence supports the pound. Markets view the government’s fiscal discipline as a stabilizing factor. This narrative partially offsets the negative impact of global inflation. Confidence in public finances remains a key pillar for asset sentiment. It prevents deeper declines despite the hawkish US backdrop.
Technical Levels Define Trading Range
The pair trades below the 100-day moving average at 1.3435. The Relative Strength Index sits near 35, indicating weak momentum. Immediate support lies at 1.3355 on the lower Bollinger band. A break below this level targets the September low of 1.3335. Further weakness could push prices toward the July low of 1.3273.
Upside resistance appears at the Bollinger midline near 1.3505. The upper band sits close to 1.3655 on the daily chart. Traders watch these levels for potential trend reversals. Current momentum favors sellers while price remains under key averages. FXStreet analysis confirms the bearish bias persists below these barriers.
