– Written by
Minesh Chaudhari
STORY LINK GBP/USD Forecast: Pound Sterling Leads G7 as BoE Rate Hike Bets Build
The Pound to Dollar exchange rate (GBP/USD) has climbed towards four-week highs around 1.3400 as stronger UK employment and inflation figures reinforce expectations of a November Bank of England rate hike.
Pound Sterling has outperformed its major peers, while concerns over the US artificial-intelligence investment boom continue to limit Dollar demand despite elevated American yields.
GBP/USD Forecasts: 4-Week Highs
The Pound maintained a firm tone on Wednesday after stronger UK labour-market and inflation data reinforced expectations of a Bank of England rate hike in November.
The Pound to Dollar (GBP/USD) exchange rate held above 1.3300 and traded close to 1.3380-1.3400, its strongest level in around four weeks.
Sterling has outperformed most major currencies in recent sessions as UK data surprised on the upside, while the Dollar struggled to gain traction amid renewed concerns surrounding the US technology sector.
GBP/USD faces significant resistance above 1.3400, with a sustained break potentially opening the way towards the mid-1.34s.
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UK Data Strengthens November BoE Hike Case
The latest UK labour-market figures showed the unemployment rate falling to 4.7% in the three months to August from 4.9% previously.
Vacancies continued to decline, but the Office for National Statistics reported a modest increase in payroll employment during August and September.
Annual regular earnings growth held around 3.7%.
Wednesday’s inflation figures added further support for Sterling.
Headline CPI accelerated to 3.5% in September from 3.1% in August, slightly above consensus forecasts, while core inflation increased to 2.8%.
Services inflation also rose to 3.7%.
The combination of stronger labour-market data and firmer inflation has effectively cemented expectations that the Bank of England will increase Bank Rate from 3.75% to 4.00% at its November meeting.
Handelsbanken FX strategist Tommy von Brömsen commented; “The UK economy is surprising on the upside. There’s room for more hiking.”
He added; “Rate differentials are going to go in favour of the pound going forward.”
There are still doubts over whether the Bank will deliver the full amount of tightening currently priced over the next 12 months.
Lloyds’ senior UK economist Nikesh Sawjani commented; “The release reinforces expectations of a November hike, rather than making a compelling case in itself for a more aggressive path thereafter.”
AI Concerns Keep Dollar on the Defensive
The Dollar has struggled to benefit fully from elevated energy prices and high US yields as investors continue to assess risks surrounding the artificial-intelligence investment boom.
Concerns have centred on highly leveraged US data-centre companies and the sustainability of current investment models.
ING commented; “Energy markets remain nervous that the US and Israel may once again attack Iran ahead of the US Mid-Terms.”
The bank added that concerns surrounding high-yield US data-centre providers remain a key threat to Dollar strength.
CoreWeave debt has traded at a substantial discount to face value, reinforcing concerns that stress in the AI investment sector could tighten US financial conditions.
The Dollar has also proved vulnerable when technology shares fall sharply, as weaker equities encourage investors to reduce expectations of further Federal Reserve tightening.
Nordea remains more constructive on the US currency.
The bank commented; “Inflows into US equities and credit are unlikely to fade simply because interest rates are slightly higher. Passive investment reinforces this trend because broad indices remain heavily concentrated in US mega-cap technology stocks.”
It added that continued unhedged investment flows into US assets should provide underlying Dollar demand.
For GBP/USD, the 1.3400 area remains the immediate technical barrier.
A sustained break higher would strengthen the recent Sterling recovery and bring 1.3450-1.3500 back into focus.
On the downside, 1.3300 should provide initial support, followed by the 1.3230-1.3250 region.
Near-term direction is likely to depend on whether UK rate expectations remain firm and whether concerns surrounding US technology and credit markets continue to restrain the Dollar.
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TAGS: Pound Dollar Forecasts
