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- GBP/USD holds positive ground near 1.3300 in Friday’s early European session.
- BoE’s Bailey says signs of second-round inflation are limited so far.
- Fed’s Warsh says he will assess the situation at the October and December meetings.
The GBP/USD pair gains traction to around 1.3300 during the early European trading hours on Friday. The British Pound (GBP) edges higher against the US Dollar (USD) amid hawkish remarks from Bank of England (BoE) Governor Andrew Bailey and stronger UK Gross Domestic Product (GDP) data.
Bailey said on Friday that soaring energy prices so far appear to be having limited wider effects on British prices, but it is too soon to draw firm conclusions about how strong such second-round effects will be.
Most economists now anticipate the UK central bank to start hiking next month, according to a Reuters poll, after keeping policy on hold since the outbreak of the US-Iran war in February.
On the other hand, Federal Reserve (Fed) Kevin Warsh gives no hint on the October policy decision. Fed Chairman spoke at the International Monetary Fund (IMF) event on Friday, saying that he does not “prejudge” interest-rate decisions, giving no preview of whether the central bank will hike or, as markets expect, hold short-term rates steady at its upcoming October 27-28 meeting.
Meanwhile, San Francisco Fed President Mary Daly and Fed Vice Chair for Supervision Michelle Bowman indicated that an immediate rate increase might not be necessary. Markets are now pricing in nearly a 27.1% chance of a rate hike later this month, according to the CME FedWatch Tool.
Pound range seen intact as GBP volatility stays contained
Strategists at UOB Group note that their medium-term view on GBP/USD remains unchanged despite the latest bout of volatility. They recall that on Monday, with spot around 1.3235, they had highlighted that GBP “is expected to trade in a range between 1.3170 and 1.3280.” Since then, the Pound “rose close to 1.3280 with a high of 1.3275 before plummeting to a low of 1.3137,” only to “rebound sharply from the low.”
UOB emphasises that this price action “did not result in any clear increase in downward momentum,” and that “the decline to 1.3137 appears to be more of a range expansion rather than the start of a sustained decline.” From here, their base case is that “we expect GBP to trade between 1.3135 and 1.3280, and GBP must clearly break either of these levels before a more directional move can be expected.”
Bailey frustration on UK inflation keeps GBP sensitive to risk headlines
FXS Speechtracker scores the speech at 6.2/10, slightly below Governor Bailey’s historic 6.4/10 baseline, pointing to a marginally softer overall impact. Persistent “enormously frustrating” above-target UK inflation and comments on a more resilient, yet insufficiently strong, UK economy lean modestly hawkish, suggesting the Bank of England is not ready to signal an imminent easing bias for GBP.
However, Bailey’s emphasis that it is “too early” to judge second-round effects, alongside subdued signs of wage-price spirals and business focus on cost-cutting, tempers the hawkish tone and keeps the shift only mildly so. The remark that Middle East news is the biggest factor moving UK gilt yields underscores that external risk events, rather than domestic data alone, are driving UK rates and GBP, leaving the currency highly reactive to geopolitical developments.
Technical Analysis: GBP/USD maintains a negative outlook under the 100-day SMA
In the daily chart, GBP/USD holds below the 100-day simple moving average (SMA) and the upper Bollinger band, which keeps the pair capped despite a modest stabilization in the Relative Strength Index (RSI) around the neutral 50 line. Price remains above the middle Bollinger band, suggesting a consolidative bearish bias with downside risks prevailing while the pair fails to reclaim the clustered resistance overhead.
On the topside, initial resistance comes at the upper Bollinger band around 1.3340, followed by the 100-day SMA at 1.3390, where stronger selling interest is likely to emerge. On the downside, immediate support is provided by the middle Bollinger band at 1.3250, ahead of a deeper cushion at the lower Bollinger band near 1.3160, whose loss would open the way for a more pronounced bearish extension.
