British Pound gains due to hawkish BoE outlook, subdued US Dollar
GBP/USD extends its gains for the third consecutive day, trading around 1.3400 during Asian hours on Friday. The pair appreciates as the British Pound (GBP) gains ground on hawkish sentiment surrounding the Bank of England’s (BoE) upcoming policy decision next week.
Traders expect the BoE to deliver a 25-basis-point rate hike in November, followed by another increase in February. Meanwhile, UK Finance Minister John Healey announced plans to raise rates on banks, gambling, savers, landlords, and online shopping, while also setting out measures to combat high energy prices.
Adding to the GBP/USD pair's upward momentum, the US Dollar (USD) faces pressure as easing safe-haven demand weighs on the greenback amid hopes for US-led diplomatic peace talks. Easing Middle East tensions have helped offset oil supply and inflationary concerns, dampening expectations for a Federal Reserve rate hike at its December meeting. Traders are now pricing in a nearly 75% chance of a 25-basis-point rate increase, down from 84.2% a day prior.
Despite the Dollar's recent headwinds, recent US economic data highlights continued resilience. Preliminary Gross Domestic Product printed at 3.4% YoY, beating expectations of 3.2% and rising from Q2's 2.2% reading, driven by strong consumer spending at 3.8% YoY. Furthermore, the Fed’s preferred inflation metric, the Core PCE Price Index, rose 3.1% YoY in line with expectations, while initial jobless claims dipped slightly to 194K, reinforcing signs of a heating economy and a tight labor market.
Warsh doubles down on price stability pledge, keeping Dollar bulls engaged
Warsh’s press conference tone is firmly hawkish, with the 7/10 FXS Speechtracker score in line relative to the historical average, but reinforced by repeated, uncompromising commitments to delivering 2% PCE price stability. The emphasis that “ensuring price stability is not about a fixed date on a calendar” and that “new monetary medicine” is working, alongside comfort with inflation expectations and tightening financial conditions, signals a data-dependent but resolutely anti-inflation stance that supports the Dollar. References to widening credit spreads, the impact of higher rates on technology and AI, and broadening capex suggest confidence that policy is biting without yet threatening the expansion, which keeps the Fed biased toward maintaining restrictive settings.
The FXS Fed Sentiment Index jumped by +14.39 points to 141.89, firmly in hawkish territory and well above the neutral 100 threshold, consistent with the strong anti-inflation messaging captured by the FXS Speechtracker. This elevated index level underscores that markets should interpret Warsh’s remarks as reinforcing a higher-for-longer rate narrative, a backdrop that is typically supportive for the Dollar versus the Euro and Yen.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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