• GBP/USD attracts some buyers on Wednesday as US-Iran peace deal hopes cap the safe-haven USD.
  • The BoE’s hawkish outlook lends additional support to the GBP and acts as a tailwind for spot prices.
  • Odds for a jumbo 50 bps Fed rate hike in December favor USD bulls and should keep a lid on the pair.

The GBP/USD pair edges higher during the Asian session on Wednesday, moving away from a one-and-a-half-week low, around the 1.3300 neighborhood, touched the previous day. Spot prices currently trade near the 1.3350 area, though the fundamental backdrop warrants some caution before positioning for any meaningful appreciation.

Investors remain hopeful about a potential diplomatic resolution to end the US-Iran war, which keeps a lid on the safe-haven US Dollar (USD) and supports the GBP/USD pair. In fact, US Secretary of State Marco Rubio said on Tuesday at a G7 meeting that there was no need for major combat operations in Iran. This follows President Donald Trump's comments on Monday that the US was keeping the Iran war at status quo as he does not currently see any reason to escalate the war.

Moreover, the Bank of England's (BoE) hawkish outlook, signaling that second-round inflation effects could require further tightening, acts as a tailwind for the British Pound (GBP) and the GBP/USD pair. Meanwhile, Tuesday's hot US consumer inflation figures reaffirmed the likelihood of a Federal Reserve (Fed) rate hike in December. Furthermore, some Fed officials, including Governor Christopher Waller, pointed to the possibility of a larger 50-basis-point (bps) rate increase.

Waller flags risk of larger December hike, lifting Dollar bulls

Fed’s Waller delivered a distinctly more hawkish tone, with a 9/10 FXS Speechtracker score standing well above the 7.3/10 historical average and underscoring a clear bias toward further tightening. The explicit openness to a half-point FED rate hike in December if October core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a low bar for additional hikes and a strong reaction function to any upside inflation surprise. Emphasis on broad-based price pressures, insufficient restrictiveness of current policy, and the need for higher real rates reinforces upside risks for US yields and supports the Dollar on a relative policy divergence narrative.

The FXS Fed Sentiment Index rose by 3.17 points to 145.50, cementing the Fed’s stance deep in hawkish territory and validating the above-baseline FXS Speechtracker reading. Such an elevated index level, far above the neutral 100 mark, suggests markets should price a higher probability of continued rate hikes and a firmer Dollar path into the December meeting.

This, in turn, favors USD bulls, suggesting that any corrective pullback is more likely to be bought into and remain limited. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent rejection slide from the 1.3500 psychological mark has run its course and positioning for the resumption of the GBP/USD pair's move higher from the year-to-date low, touched in October.

GBP/USD 4-hour chart

Technical Analysis

The GBP/USD pair hovers just above the 50.0% Fibonacci retracement and the 200-period Simple Moving Average (SMA) on the 4-hour chart, which together offer a constructive underlying base. The upside is capped by nearby Fibonacci resistance at 1.3365, pointing to a neutral near-term bias.

On the upside, immediate resistance is located at the 38.2% retracement at 1.3365, followed by a stronger barrier at the 23.6% level around 1.3419. On the downside, first support aligns at the 50.0% retracement at 1.3322, reinforced by the 200-period SMA at 1.3314. A break lower would expose the 61.8% Fibo. retracement at 1.3279, with deeper cushions at 1.3217 and 1.3138 if selling pressure accelerates.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.