Pound Sticks at 1.3240 as Fed Hawkishness Meets UK Rate Doubts
GBP/USD holds near 1.3240 despite strong US data. Fed officials signal more hikes, while UK banks question aggressive Bank of England pricing.
Key points
- US Composite PMI rose to 58.4 in September, strengthening the case for further Federal Reserve rate hikes.
- Markets price a 67% probability of a Bank of England rate hike in November, despite some banks suggesting less tightening.
- GBP/USD trades near 1.3240, with technical resistance identified at 1.3258 and support at 1.3140.
The British pound traded near 1.3240 against the dollar on Thursday morning in Europe. Strong US economic data and hawkish Federal Reserve comments limited the currency's upside. The pair faced pressure from a widening policy gap between the two central banks.
US S&P Global Flash Composite PMI rose to 58.4 in September from 56.0 in August. Manufacturing PMI also climbed to 57.0, beating the 53.5 forecast. These figures fueled bets that the Fed will continue raising rates to control inflation.
Fed Officials Signal Further Tightening
Fed Governor Michael Barr stated that further policy adjustments are likely needed. He joined colleagues Tom Barkin and Susan Collins in supporting recent rate increases. Their remarks suggest the US central bank remains focused on fighting persistent inflationary pressures.
These comments strengthened the US dollar and acted as a headwind for the pound. Markets are pricing in a 67% chance of a Bank of England rate hike in November. This expectation contrasts with the more aggressive tightening path implied by US data.
UK Rate Hike Expectations Face Scrutiny
Brown Brothers Harriman strategists questioned the market’s aggressive pricing of Bank of England moves. They noted that the swaps curve implies 100 basis points of hikes over the next twelve months. The firm argues the UK economy is already operating below its capacity.
The current Bank Rate of 3.75% is near the top of the neutral range. Fiscal policy is also likely to become more restrictive. These factors suggest the Bank of England may not need to tighten as much as markets expect.
Technical Levels Define Near-Term Risk
GBP/USD shows a bearish tone on the daily chart as spot trades below key levels. The pair sits below the lower Bollinger Band limit near 1.3258. This level now acts as the first hurdle for any corrective bounce.
Heavier resistance sits at the 100-day moving average of 1.3428. Support is located at the June 24 low of 1.3140. A break below this level could expose the psychological barrier at 1.3000, according to FXStreet analysis.
