British Pound edges higher vs weak USD as focus remains glued to this week’s FOMC meeting

• GBP/USD regains positive traction at the start of a new week amid a combination of supporting factors.
• The recent decline in US bond yields caps the USD recovery, while BoE rate hike bets underpin the GBP.
• Mideast jitters and a hawkish Fed could limit USD losses ahead of the central bank event and data risks.

The GBP/USD pair attracts some dip-buyers near the 1.3360 area during the Asian session on Friday, stalling last week’s modest pullback from its highest level since September 16. Bulls, however, might await sustained strength and acceptance above the 1.3400 mark before placing fresh bets as the market focus remains glued to this week’s key central bank event.

The US Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is expected to leave interest rates unchanged at the end of a two-day policy meeting. In the absence of updated economic projections, traders will closely scrutinize the accompanying rate statement and Fed Chair Kevin Warsh’s comments during the post-meeting press conference. Apart from this, important US macro releases – the Advance Q3 GDP print and the Personal Consumption Expenditures (PCE) Price Index on Thursday – will influence market expectations about the Fed’s future policy path. The outlook, in turn, will drive US Dollar (USD) demand and provide some meaningful impetus to the GBP/USD pair.

In the meantime, the recent sharp decline in US bond yields keeps a lid on the attempted USD recovery move from a three-week low, touched last Thursday. The British Pound (GBP), on the other hand, continues to draw support from firming expectations of tighter monetary policy from the Bank of England (BoE), bolstered by stronger-than-expected UK inflation data and resilient labor market figures. In fact, traders are pricing in roughly 95% odds for a 25-basis-point (bps) BoE rate hike at the next meeting on November 5. This, in turn, acts as a tailwind for the GBP/USD pair and backs the case for an extension of the recent goodish rebound from a nearly four-month trough, touched on October 14.

Meanwhile, investors are still assigning a nearly 80% probability that the US central bank will raise borrowing costs in December. Furthermore, the geopolitical risk premium remains firmly in play amid stalled US-Iran peace talks. In further developments, the Iran-backed Houthis in Yemen threatened on Sunday that they will keep attacking Saudi Arabia’s King Khalid Airport in Riyadh. This could limit losses for the safe-haven Greenback and cap the GBP/USD pair, making it prudent to wait for sustained strength and acceptance above the 1.3400 mark before placing fresh bullish bets. Nevertheless, the supportive fundamental backdrop suggests that any corrective pullback could be bought into.

GBP/USD daily chart

Technical Analysis

The GBP/USD pair holds just beneath the 100-day Simple Moving Average (SMA) at 1.3390 and the 50.0% Fibonacci retracement at 1.3403. A daily close above the latter would open the way toward the 61.8% retracement at 1.3466 and then 1.3556.

On the downside, initial support emerges at the 38.2% retracement at 1.3341, ahead of the 23.6% level at 1.3263, where buyers would be expected to show more interest. A sustained break under 1.3263 would expose the structural Fibonacci anchor at 1.3137.

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