Forex News

• The Bank of England is expected to raise its policy rate to 4.00%.
• UK inflation figures remain well above the BoE’s goal.
• GBP/USD remains close to the 1.3500 mark, or two-month highs.

The Bank of England (BoE) is set to reveal its latest monetary policy decision on Thursday, coinciding with its seventh rate-setting meeting of 2026.

Market analysts expect the ‘Old Lady’ to increase its policy rate by a quarter percentage point to 4.00%, the highest level since November 2025.

As usual, the Monetary Policy Committee’s (MPC) decision will be followed by the publication of the meeting Minutes, which will detail the internal discussions that shaped the outcome.

The central bank maintained interest rates at 3.75% in September amid a split vote from the MPC (6-3), indicating an impasse to assess the potential effects on the UK economy of the still ongoing crisis in the Middle East.

Attention remains broadly on inflation and geopolitics

In his latest comments, Bank of England Governor Andrew Bailey said above-target UK inflation remained “enormously frustrating" but cautioned that it was still too early to assess the strength of any second-round effects. So far, those effects appear subdued, with businesses focusing on cutting costs rather than raising prices more aggressively.

Bailey said the UK economy had proved more resilient than expected, although activity remained weaker than the Bank would like. He also noted that developments in the Middle East were the main factor driving gilt yields, adding another layer of uncertainty to the policy outlook.

Overall, Bailey’s message was cautious rather than decisively hawkish. The BoE still needed more evidence on whether the inflation shock is becoming embedded before it can form a firm view on the next policy move.

How will the BoE interest rate decision impact GBP/USD?

Market participants appear broadly inclined toward a rate hike on Thursday at 12:00 GMT.

Beyond the rate decision per se, attention will also focus on the vote split among MPC members, which might be a market mover for the British Pound if it indicates an unusual outcome.

In the run-up to the meeting, GBP/USD advances for the fourth week in a row, looking to further fade the sharp downward trend initiated in late August.

"Cable keeps the multi-week recovery well in place, managing to clear its key 200-day SMA around 1.3420, therefore allowing for the rebound to continue," said Pablo Piovano, Senior Analyst at FXStreet. Next on the upside comes the September high at 1.3567 (September 9), followed by the August ceiling at 1.3675 (August 21).

On the downside, there are no support levels of note until the 2026 floor at 1.3137 (October 14), prior to the November 2025 valley at 1.3010 (November 4), Piovano adds.

“Momentum indicators seem to favour extra gains, as the Relative Strength Index (RSI) climbs past the 65 level, while the Average Directional Index (ADX) around 22 is indicative of a fairly firm trend,” he concludes.

Societe Generale strategists highlight that GBP/USD has rebounded from the lower boundary of its multi‑month range and reclaimed its 200‑DMA, suggesting scope for further recovery. The bank sees resistance near 1.3555/1.3600 and 1.3660, with first support at the 200‑DMA around 1.3420. Overnight, Cable consolidated near a seven‑week high ahead of the Bank of England (BoE) decision.

Range base holds as bulls regroup

"GBP/USD defended the lower boundary of its multi-month range at 1.3200/1.3140, resulting in a rebound. The pair has now reclaimed its 200-DMA, highlighting the possibility of an extension in the recovery."

"The next potential hurdles are located at projections of 1.3555/1.3600 and the upper boundary of the range at 1.3660, which could be a crucial resistance. The 200-DMA, currently around 1.3420, is the first support."

"Cable consolidates at 7-week high near 1.35 ahead of BoE, +25bp anticipated and 6-3 split could trigger p/t. Support 1.3420, resistance 1.3600. EUR/GBP steady around 0.8350, support 0.8320 and resistance 0.8370."

"The cut-off period for the updated growth and inflation forecasts was October. The bank is locked and loaded to tighten by 25bp and hoist bank rate to 4.0%. Cheaper oil gives Governor Bailey the opportunity to lean against market pricing of two additional hikes next year which could spur profit taking in GBP/G10."

"A unanimous 9-0 vote would be a hawkish surprise and could spur another round of short-covering and potentially deflate EUR/GBP to a new cycle low."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

MUFG’s Lee Hardman notes that the US Dollar (USD) has extended its post-US mid-term election decline, with the US Dollar Index (DXY) down and US yields softer as Brent Oil drops back towards its 200-day moving average. Renewed optimism over a potential US-Iran deal is seen easing inflation risks and undermining Dollar support, while upcoming US nonfarm payrolls could offer some near-term relief.

Dollar softens with yields and Brent

"The US dollar has continued to weaken overnight extending the sell-off triggered by the US mid-term election results. The dollar index has now fallen by around 0.6% since the results were announced revealing a Blue wave as the Democrats decisively took control of Congress. The correction lower of the US dollar has also coincided with a further adjustment lower in US yields."

"The weaker US dollar and lower US yields have been encouraged by the sharp decline in the price of oil which is helping to ease market concerns over upside inflation risks. The price of Brent has fallen by around USD10/barrel since the US mid-term elections results were announced dropping back towards support from the 200-day moving average at around USD93.60/barrel. The price of oil had already been falling sharply at the start of this week and the mid-term election results have reinforced the sell-off."

"Overall, the latest developments have clearly boosted investor optimism over the prospect of a deal to end the US-Iran conflict. A less prolonged energy price shock would help to dampen the case for a stronger US dollar."

"Market attention at the end of this week will shift to the release of the last nonfarm payrolls report on Friday. Leading indicators of labour demand including yesterday’s ADP survey are signalling strengthening US employment growth which is confirmed on Friday could help to provide some support for the US dollar after the recent setback."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Antje Praefcke at Commerzbank reports that the Riksbank raised its policy rate from 1.75% to 2.00% as expected and remains in restrictive mode, but the statement weakens the case for a December hike. She sees the key decision likely pushed to February 2027, with EUR/SEK potentially moving back above 11 if rate increases are delayed and energy prices fall.

Restrictive stance but later hike risk

"The Riksbank raised its policy rate yesterday from 1.75% to 2%, as expected. It will not publish updated forecasts until December, alongside its new Monetary Policy Report. The reason for yesterday’s rate hike is clear: Stronger economic activity combined with cost increases due to supply disruptions mean that inflation is expected to continue rising going forward."

"Inflation continues to be dampened by special factors. According to the Riksbank, inflation would be at 3% without these temporary fiscal policy measures. Due to stronger economic activity, cost increases resulting from supply disruptions and a weaker krona this year, both inflation and underlying inflation are expected to rise above 2% next year, according to the Riksbank."

"While the Riksbank is thus maintaining its restrictive stance, the statement now suggests that the case for a December rate hike has weakened. The focus is therefore shifting more towards February 2027, unless supply disruptions persist and increase the risk of inflation remaining too high, which could prompt the Riksbank to raise the policy rate again as early as December."

"Should a December hike become more likely over the coming weeks, the krona could strengthen somewhat further. Conversely, signs of an end to the Iran conflict and falling energy prices would argue for postponing the next rate hike until February or potentially even later. If the latter scenario materialises, I would expect a modest correction in the SEK, with EUR/SEK moving back above 11."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)