GBP/USD dropped to 1.3203 on Friday, hitting a three-month low. The sterling remains heavily pressured by a robust US dollar, anticipated further Federal Reserve rate hikes, and a worsening economic outlook driven by elevated oil prices.
Bank of England Deputy Governor Clare Lombardelli noted that interest rates may need to increase further if energy costs stay elevated—unless the economy demonstrates clear signs of deterioration. She has previously emphasized that the rationale for tighter monetary policy is gaining traction.
Meanwhile, divisions persist within the Bank of England. MPC member Swati Dhingra, who holds a dovish view, argues that inflation expectations do not yet constitute a significant threat.
Financial markets are still pricing in a high likelihood of a 25-basis-point Bank of England rate hike in November. Nevertheless, this expectation has failed to meaningfully bolster the pound, as the US dollar continues to surge on hawkish Fed rhetoric and strong US PMI figures.
Technical Analysis
On the H4 GBP/USD chart, the market completed an upward trajectory towards 1.3255 before declining to 1.3205. The pair is currently extending its downward momentum towards 1.3175.
The MACD indicator corroborates the bearish outlook. Its signal line remains below the zero mark and is pointing decisively lower.
On the H1 GBP/USD chart, the market has established a narrow consolidation range around 1.3271, currently extending downwards to 1.3220 and upwards to 1.3256.
A further decline towards 1.3190 and subsequently 1.3175 is anticipated.
The Stochastic oscillator reinforces this bearish scenario. Its signal line remains below 50 and points firmly downward, with a move toward 20 expected in the near term.
Conclusion
GBP/USD has reached a three-month low as the pound struggles against a broadly stronger US dollar, fueled by expectations of further Fed tightening and resilient US economic data. While Bank of England Deputy Governor Clare Lombardelli has signaled that further rate hikes may be warranted if energy prices remain high, disagreements persist within the MPC, with Swati Dhingra maintaining a more dovish stance. Elevated oil prices continue to obscure the UK economic outlook, compounding the pressure on sterling.
From a technical standpoint, GBP/USD remains under pressure, with a further decline towards 1.3190 and subsequently 1.3175 expected in the near term. The pound’s trajectory will hinge on upcoming UK data and whether the US dollar’s rally shows signs of exhaustion.