Sterling (1.3366) Tests the 100-Day SMA as 54 of 63 Economists Expect a BoE Hike — Upside to 1.3435

GBP/USD is trading at 1.3366, up 0.69% on the day. Other quotes put the pair at 1.3369, up 0.70%, or 93 pips. The pound has moved steadily higher through the European session. At 6:15 a.m. ET it was at 1.3341, up 0.51%. By mid-morning it had extended the gain to near 1.3370.

The move caps a sharp turnaround. On Wednesday, October 14, after the hot U.S. consumer price report, cable fell to 1.3137, its lowest level since late June. That was a 15-week low. Over the four weeks to that low, the pound lost 2.18% against the dollar. From 1.3137 to 1.3366, sterling has now recovered 229 pips, or 1.74%, in two and a half sessions.

The daily closes show the path. GBP/USD closed at 1.3210 on Monday, October 12, then 1.3257 on Tuesday. Wednesday’s close was 1.3231 after the intraday drop to 1.3137. Thursday closed at 1.3272, with a range of 1.3222 to 1.3278. Friday’s rally has added another 94 pips on top of that.

The pair is up on the week. From Monday’s 1.3210 close to the current 1.3366, cable has gained 156 pips, or 1.18%. Over the past seven days, the gain is 0.87%. Over a month, the pound is up 0.02%, essentially flat. Over 12 months, it is down 0.43% to 0.48%.

The 52-week range is 1.3009 to 1.3869. At 1.3366, cable sits 357 pips above the 52-week low and 503 pips below the 52-week high. The six-month high was 1.3654 on August 24.

Sterling is outperforming the euro. EUR/USD is up 0.34% to 1.1259, while GBP/USD is up 0.69%. That pushed EUR/GBP down 0.34% to 0.8421. The pound is rising against both the dollar and the euro, which means the move is not just about dollar weakness. UK-specific factors are adding to it.

Three forces are driving the rally. First, the UK economy grew in August when economists expected a contraction. Second, markets now expect the Bank of England to raise rates on November 5, its first hike in more than three years. Third, the dollar is weakening after Fed Chair Kevin Warsh gave no signal of an October Fed hike. The next sections examine each one, along with the risks.

The GDP Surprise: 0.1% Growth Instead of a Contraction

Thursday’s GDP data from the Office for National Statistics started the pound’s rally.

The UK economy grew 0.1% in August. Economists expected a contraction of 0.1%. July’s growth was 0.4%. The economy has now grown in each of the last several months despite high energy costs and rising borrowing rates.

The three-month figure was stronger. GDP grew 0.7% in the three months to August, compared with the prior three months. The consensus was 0.5%. It was the fourth straight month in which growth beat forecasts. Year over year, GDP grew 2.1%, above the 1.7% forecast and up from 1.8% in July.

Services drove the growth. Services output rose 0.9% in the three months to August, after 0.7% growth in the three months to July, which was revised up from 0.6%. Services make up about 80% of the UK economy. Construction fell 1.0% over the three months, and production fell 0.2%.

Other data added to the picture. UK industrial output hit a nine-month high. Manufacturing output unexpectedly rose in August. The UK trade gap was the smallest in seven months. Retail sales growth picked up in September.

The quarterly trend is solid. UK GDP grew 0.6% in the first quarter of 2026 and 0.5% in the second quarter. If September is flat, third-quarter growth would be close to 0.7%. The next GDP release, including the first estimate for the third quarter, is on November 12.

Economists are raising their forecasts. A survey of economists this week raised the 2026 UK growth forecast to 1.3% from 1.1%. Forecasts for 2027 and 2028 were kept at 1.2% and 1.5%.

Sterling reacted immediately. After the data, the pound rose about 0.5% to around 1.325 to 1.328. Friday’s gains extended that move.

The growth data matters for the pound in two ways. First, a stronger economy attracts investment. Second, and more important for currency markets, strong growth gives the Bank of England more room to raise rates. A central bank worried about recession might hesitate to hike. A central bank looking at four straight months of upside surprises has less reason to wait.

For the forecast, the GDP data removes one of the main arguments against a November rate hike. That supports the pound through the November 5 decision.

Bank of England: 54 of 63 Economists See a Hike to 4.00% on November 5

Expectations for a Bank of England rate hike are the main support for sterling right now.

Bank Rate is 3.75%, where it has been since December 18, 2025. The Bank held rates at its September 17 meeting in a 6–3 vote. The three dissenters voted for a hike.

The next decision is on Thursday, November 5, at 12:00 UK time, along with a new Monetary Policy Report. A survey of economists conducted October 12 to 14 found 54 of 63 expect the Bank to raise Bank Rate by 25 basis points to 4.00%. A month ago, about 90% of respondents expected rates to stay on hold for the rest of the year. The shift in expectations has been sharp.

A November hike would be the first rate increase in more than three years. The Bank cut rates through 2024 and 2025 and was expected to keep cutting in 2026 before the Middle East war began in February. Energy prices reversed that plan.

Beyond November, economists are split. Thirty of 61 expect another hike in the first quarter of 2027. That is just under half. The rest expect the Bank to pause after November.

Inflation is the reason. UK consumer price inflation rose to 3.1% in August from 2.9% in July. The Bank expects inflation to rise toward 4% in the coming months. It has said that level would require a policy response. Economists forecast inflation averaging 3.6% in the fourth quarter of 2026 and 3.8% in the first quarter of 2027, before easing to 3.0% in 2027.

Two members of the Monetary Policy Committee are pushing hard for action. External member Megan Greene and chief economist Huw Pill both warned in Bangkok this week against waiting for more evidence of inflation. Both have been voting for rate increases, citing the risk of second-round effects and the need to move quickly.

The rate comparison with the U.S. matters for cable. The Fed’s target range is 3.75% to 4.00%. A BoE hike to 4.00% would bring UK rates up to the top of the Fed’s range. Markets now price an 85% chance the Fed holds on October 28. If the BoE hikes on November 5 and the Fed holds, the interest rate gap moves in the pound’s favor.

For the forecast, the November hike is mostly priced in. That means it supports the current level but may not drive large additional gains on its own. The bigger risk for the pound is if the BoE surprises by holding. That would likely send cable sharply lower.

Bailey in Bangkok: “Quite Subdued” Second-Round Effects

Governor Andrew Bailey spoke at the Institute of International Finance meeting in Bangkok on Friday. His comments were more cautious than some of his colleagues’.

Bailey said there is little evidence yet of inflation becoming embedded in UK price and wage-setting. To the extent the Bank has seen evidence, he said, it is quite subdued. He added that it is too early to judge. Businesses are focused mainly on cutting costs, he said, rather than raising prices to cover higher energy bills.

That message is slightly less hawkish than the market expected. The Bank is watching for second-round effects, which happen when companies raise prices and workers demand higher wages to cover rising costs. If those effects stay limited, the Bank has less reason to raise rates aggressively.

Bailey also had positive things to say about the economy. He said the UK economy is proving more resilient than the Bank expected. That supports the case for a hike, since a stronger economy can handle higher rates.

He has argued that current policy is already restrictive. The Bank had planned to cut rates this year before the Iran conflict began in February. Holding rates at 3.75% instead of cutting has the same effect as tightening, in his view.

Bailey’s tone has hardened since September. In late September, he warned that persistently high energy prices would make it harder to keep rates on hold. He said the Bank could not wait for complete evidence on inflation expectations. He has also said that looking through an energy shock only works while inflation expectations stay anchored.

Bailey said Middle East news is the biggest factor moving UK gilt yields. That underscores how much the pound depends on events outside the UK.

He also said the UK budget deficit is on a declining path. That is a positive signal for gilt markets ahead of the October 28 Budget.

The market reaction to Bailey was limited. The pound continued to rise through the morning after his comments, helped by dollar weakness. His caution on second-round effects was balanced by his comments on economic strength.

For the forecast, Bailey’s comments keep the November hike as the base case but reduce the odds of an aggressive tightening cycle. That caps how far the pound can rally on BoE expectations alone.

Gilts at 5.38%: Yields Near the Highest Since 2007

UK government bond yields are high, and their direction matters for the pound.

The 10-year gilt yield is at 5.3765% today, up slightly from Thursday’s close of 5.3739%. Thursday’s trading range was 5.3056% to 5.3804%. The yield fell below 5.35% intraday on Thursday, the lowest in three weeks, as global investors bought bonds during the equity selloff.

Gilt yields have come down from their recent peak. The 10-year was at 5.4542% on October 13 and 5.4203% on October 14. Earlier this month, it reached 5.46%, close to its highest level since July 2007. The 10-year yield is up 0.88 percentage points from a year ago.

Long-dated gilts are even higher. In September, the UK sold 30-year bonds at a yield of 5.8168%. That was the highest borrowing cost since the Debt Management Office was founded in 1998.

The UK pays more to borrow than the U.S. The 10-year gilt yields 5.38%, while the 10-year Treasury yields 5.09%. That 29-basis-point gap favors the pound, since investors earn more holding UK bonds.

Higher yields are not always good for the pound, however. If yields rise because of strong growth and a hawkish central bank, the pound usually benefits. If yields rise because investors worry about the government’s finances, the pound often falls, because investors are selling UK assets. That happened in 2022, when the mini-budget sent gilt yields soaring and the pound to a record low.

Right now, both forces are at work. Part of the rise in gilt yields reflects BoE hike expectations and global inflation. Part reflects concern about UK public finances ahead of the October 28 Budget.

The recent pullback in yields has been healthy for the pound. Yields fell as global investors moved into government bonds during the AI-related tech selloff. That reduced pressure on UK fiscal finances without hurting the BoE outlook.

The FTSE 100 benefited too. London’s main index rose 115.49 points to 10,840.35 on Thursday, its highest close since late August. Pharmaceutical and consumer staples stocks led the gain.

For the forecast, gilt yields between 5.30% and 5.45% are supportive for the pound. A move above 5.50% driven by fiscal fears would be negative. A drop below 5.30% combined with a BoE hike would be the best outcome for sterling.

The October 28 Budget: Healey’s Fiscal Headroom Shrinks

The UK Budget on October 28 is the biggest domestic risk for the pound over the next two weeks.

Chancellor John Healey will deliver his first Budget on October 28. The Office for Budget Responsibility will publish its fiscal forecast on the same day. HM Treasury will publish its forecasts for the UK economy on October 21.

The government’s fiscal headroom has shrunk. In the spring forecast, the headroom against the government’s fiscal rules was £23.6 billion. Higher gilt yields and rising inflation have reduced that cushion. Current estimates range from £11 billion to £20 billion. The Institute for Fiscal Studies put it at £20 billion on October 11.

Some estimates are lower. At peak gilt yields in September, one estimate put the headroom at about £13 billion. The government may need to close a gap of around £11 billion a year through tax rises, spending cuts or both.

Tax rises look likely. Economists widely expect the government to raise taxes to stay within its fiscal rules. The question is how large the increases will be and how markets will react.

Markets will judge the Budget on credibility. A Budget that meets fiscal rules with clear, credible measures would likely support gilts and the pound. A Budget that relies on optimistic assumptions or backs away from tax increases could push gilt yields higher. In the worst case, the 10-year gilt yield could rise toward 5.9%, according to some analysts.

The government is also under pressure to help households. Energy costs have pushed up living costs, and there is political demand for relief. Healey has pledged measures to provide some economic relief while keeping the commitment to reducing the deficit. Balancing those goals is the core challenge.

The IMF has welcomed the government’s plans to reduce the deficit. Bailey’s comment that the deficit is on a declining path also supports the government’s credibility.

The Budget timing overlaps with key events. It comes one day after the Fed’s October 27–28 meeting begins and one week before the BoE’s November 5 decision. The ECB also meets on October 29. That cluster of events makes late October a high-volatility period for the pound.

For the forecast, the Budget is a two-sided risk. A credible Budget could push cable above 1.3435. A Budget that unsettles gilt markets could send it back below 1.3200 quickly.

The Dollar Side: Warsh Neutral, DXY at 101.69

Half of every GBP/USD move comes from the dollar. On Friday, the dollar is weakening.

The dollar index fell 0.35% to 101.69 on Friday. It is on track for its first weekly decline in five weeks. Earlier this week, it reached an 18-month high near 103 after the hot September CPI report.

Fed Chair Kevin Warsh drove the move. Speaking in Bangkok on Friday, Warsh gave no signal about the Fed’s October 27–28 meeting. He said conditions had broadly conformed to the Fed’s expectations and that he does not prejudge meetings. Markets read that as reducing the odds of an October hike. Markets now price an 85% probability that the Fed will hold.

The U.S. data has been hot. September CPI rose 3.7% year over year, above the 3.6% forecast. Core CPI rose 0.3% for the month. September PPI rose 1.3% for the month and 6.3% over 12 months. Import prices rose 1.1% in September, above the 0.8% forecast.

Those numbers sent cable to its 15-week low on Wednesday. Sterling fell below 1.32 as stronger U.S. inflation reduced expectations of a Fed hold in October.

U.S. growth data has been mixed. September industrial production rose 0.7%, above forecasts. But underlying consumer demand, excluding energy spending, has shown signs of slowing. That points to a U.S. economy under pressure from high energy prices.

U.S. Treasury yields have eased. The 10-year Treasury yield is at 5.09%, down from 5.33% after the CPI report. Lower yields make dollar assets less attractive, which supports GBP/USD.

The rate gap between the U.S. and UK is narrowing. With the Fed at 3.75% to 4.00% and the BoE at 3.75%, the U.S. currently has the edge. A BoE hike to 4.00% with the Fed on hold would close that gap. If the Fed hikes on October 28, the gap would widen again in the dollar’s favor.

U.S. politics matters too. The U.S. midterm elections are on November 3. The White House has pushed for lower rates. Political pressure on the Fed could weigh on the dollar.

For the forecast, the dollar’s direction depends on the Fed. A Fed hold on October 28 would keep the dollar soft and support cable. A surprise Fed hike would push GBP/USD back toward 1.3200.

Energy Shock: Why Oil Hurts the Pound Less Than the Euro

The Middle East conflict and high oil prices are the background for every currency move this year.

Brent crude is trading at $105.36 a barrel. Oil has been above $100 for much of the year since the war began on February 28. More than two dozen attacks on shipping in the Strait of Hormuz region have been recorded since October 1.

High energy prices hit the UK in two ways. They push up inflation, which forces the BoE to keep rates high or raise them. They also squeeze household budgets and slow economic growth.

The UK is better positioned than the eurozone. The UK produces oil and gas from the North Sea, although it is still a net importer. The eurozone depends more heavily on imported energy. Eurozone energy inflation hit 18.9% in September, pushing headline eurozone inflation to 3.8%. That gap helps explain why EUR/GBP has fallen to 0.8421 and why the pound is outperforming the euro on Friday.

UK inflation is lower than eurozone inflation. UK CPI was 3.1% in August, while eurozone inflation was 3.8% in September. Lower inflation gives the BoE more flexibility, although both central banks face similar pressures.

The IEA’s emergency oil release helps. The IEA agreed to release the remaining 100 million barrels from its March emergency agreement and more than 20 million barrels of diesel. European diesel margins fell after the announcement. That reduces some pressure on UK inflation.

Energy prices also affect gilt yields. Bailey said Middle East news is the biggest factor moving UK gilt yields. When oil spikes, inflation expectations rise and gilt yields climb. That can hurt the pound if it raises fiscal concerns.

For the forecast, energy is a key risk factor. A drop in oil prices toward $95 would ease UK inflation, reduce gilt yields and support the pound. A spike above $110 would raise inflation fears and could push gilt yields higher, which would be negative for sterling.

EUR/GBP at 0.8421: The Pound’s Strength Beyond the Dollar

The pound’s gains against the euro confirm that UK-specific factors are adding to its strength.

EUR/GBP fell 0.34% to 0.8421 on Friday. That means the pound gained 0.34% against the euro. The pound is outperforming both the dollar and the euro.

Several factors support the pound against the euro. UK growth has beaten forecasts for four straight months. The BoE is expected to hike in November, while the ECB is expected to hold on October 29. UK inflation is lower than eurozone inflation. And French fiscal concerns are weighing on the euro.

The French issue is significant. The spread between French and German 10-year bond yields was 135.2 basis points on Thursday, after peaking near 150 basis points in early October. France’s public debt is 119% of GDP, and the government unveiled a €43 billion austerity package on October 1. Investors are worried about French fiscal sustainability.

The UK has its own fiscal concerns. Gilt yields are high, and the October 28 Budget will be closely watched. But for now, French concerns are weighing more heavily on the euro than UK concerns are on the pound.

The interest rate gap supports the pound. The ECB deposit rate is 2.50%, while the BoE’s Bank Rate is 3.75%. That 125-basis-point gap favors the pound. A BoE hike to 4.00% would widen it to 150 basis points if the ECB holds.

The euro-pound cross is a useful signal. A weekly close below 0.8455 has been flagged as a key level for EUR/GBP. At 0.8421, the cross is already below that level. A weekly close here would confirm the pound’s strength against the euro.

For GBP/USD, the euro-pound cross helps identify the source of moves. When the pound rises against both the dollar and the euro, the move is about sterling strength. When it rises only against the dollar, the move is about dollar weakness. Friday’s move shows both.

For the forecast, the pound’s outperformance against the euro is a positive sign. It shows investors are choosing sterling for its own merits, not just as an alternative to the dollar.

The Technical Map: 1.3137 Floor, 1.3390–1.3400 Ceiling

The GBP/USD chart shows a strong rebound running into a key resistance zone.

The 100-day simple moving average sits at 1.3390 to 1.3400. That is the most important level on the chart. Cable has been capped below this average since September. At 1.3366, the pair sits 24 to 34 pips below it. A daily close above 1.3400 would end the bearish structure that has held since mid-September.

Above the 100-day SMA, the next resistance is 1.3432 to 1.3435, where the upper Bollinger band and prior resistance meet. Beyond that, 1.3505 was a key level in September. The August 24 high of 1.3654 is the six-month top.

The upper Bollinger band near 1.3340 to 1.3375 is the first test. Cable is trading right in that zone. Breaking through the upper band would signal strong upside momentum.

On the downside, the first support is 1.3280, which acted as resistance earlier in the week. Below that, Thursday’s low of 1.3222 is important. The October 1 low of 1.3180 is the next level. The 15-week low of 1.3137 is the key floor. Below that, 1.3100 and the 52-week low of 1.3009 are the next targets.

The move to 1.3137 looks like a range extension rather than the start of a deeper decline. The rebound from the low was sharp, and downward momentum did not pick up. That suggests the drop was driven by the U.S. CPI shock rather than a fundamental shift.

Momentum has improved. The 14-day RSI was 39.16 on October 14, below the 50 midline. It has since moved back to around 50, the neutral line. A move above 55 would confirm bullish momentum.

The moving averages are bunched together. As of October 14, the 20-day, 50-day, 100-day and 200-day averages on some data sets were all clustered near 1.3226 to 1.3235. Cable has now moved above that cluster. That is a positive technical signal.

Average daily range is about 0.71%, or 95 pips. Friday’s 93-pip gain is close to a normal day’s range.

For the forecast, 1.3400 is the decisive level. A daily close above it targets 1.3435 and then 1.3505. A rejection there would send cable back toward 1.3280 and 1.3222.

Key Events: UK Labour Data, CPI, Budget, Fed and BoE

The next three weeks bring an unusually dense calendar for the pound.

UK labour market data, October 20. The unemployment rate was 4.9% in the latest release. Average earnings including bonuses rose 3.9% year over year, and earnings excluding bonuses rose 3.5%. Employment rose by 67,000. A rise in wage growth would support the BoE hike case. A sharp rise in unemployment would weaken it.

UK September CPI, next week. August CPI was 3.1%. The Bank expects inflation to rise toward 4%. A reading at or above 3.4% would cement the November hike. A reading below 3.0% would raise doubts.

HM Treasury forecasts, October 21. These will give a first look at the government’s economic projections before the Budget.

Tesla, Meta and Netflix earnings, October 20–21. Big Tech earnings will drive global risk sentiment and the AI trade. A weaker tech market tends to support the dollar as a safe haven.

Fed decision, October 28. Markets price an 85% chance of a hold. A hold would support cable. A hike would push it lower.

UK Budget and OBR forecasts, October 28. The single biggest domestic risk for the pound in the next two weeks.

ECB decision, October 29. Most economists expect a hold at 2.50%. That would support the pound against the euro.

U.S. midterm elections, November 3.

BoE decision and Monetary Policy Report, November 5. The main event. Economists expect a hike to 4.00%.

UK third-quarter GDP, November 12.

This calendar means volatility is likely to rise through late October and early November. Traders often reduce positions ahead of major events, which can lead to choppy price action.

For the forecast, the key sequence is: UK CPI next week, then the Fed and Budget on October 28, then the BoE on November 5. A hot UK CPI followed by a credible Budget and a BoE hike would be the best path for the pound.

Scenarios Into the October 28 Budget and November 5 BoE

Base case: break above 1.3400, target 1.3435 (50% probability). UK September CPI comes in at or above 3.1%. The Fed holds on October 28. The Budget meets fiscal rules with credible tax measures, keeping gilt yields between 5.30% and 5.45%. Markets stay confident in a November 5 BoE hike. Cable closes above the 100-day SMA at 1.3390 to 1.3400 and moves to 1.3435. A move from 1.3366 to 1.3435 is a gain of 69 pips, or 0.52%.

Bull case: 1.3505 to 1.3550 (20% probability). UK CPI rises above 3.4%, raising odds of a second hike in early 2027. The Budget is well received, pushing gilt yields below 5.30%. The Fed holds and signals patience. The dollar index drops toward 100.5. Cable clears 1.3435 and moves to 1.3505 to 1.3550.

Bear case: back to 1.3180 to 1.3137 (30% probability). UK CPI disappoints, falling below 3.0%. The Budget unsettles gilt markets, pushing the 10-year yield above 5.50%. The Fed hikes on October 28 or signals a December hike. Middle East escalation sends oil above $110. Cable fails at 1.3400, closes below 1.3280 and moves toward 1.3222, 1.3180 and the 1.3137 low.

The base case is favored. UK growth is strong, the BoE is likely to hike and the dollar is weakening. The bear case carries meaningful weight because the Budget is a binary event and the Fed outlook remains uncertain.

GBP/USD Price Forecast Verdict: Hold 1.3280, Break 1.3400, Target 1.3435

GBP/USD is at 1.3366, up 0.69% on the day and 229 pips above Wednesday’s 15-week low of 1.3137. The setup leans bullish, but the pair needs to clear its key resistance.

The bull case rests on four points. First, UK GDP grew 0.1% in August against forecasts of a contraction, and three-month growth reached 0.7%, the fourth straight month of upside surprises. Second, 54 of 63 economists expect the BoE to raise Bank Rate to 4.00% on November 5, its first hike in more than three years. Third, the 10-year gilt yields 5.38% against 5.09% for the 10-year Treasury, a 29-basis-point gap in the pound’s favor. Fourth, the dollar index fell to 101.69 after Warsh gave no signal of an October Fed hike, and the pound is outperforming the euro, with EUR/GBP down to 0.8421.

The bear case rests on four points. Cable remains below the 100-day SMA at 1.3390 to 1.3400, which has capped it since September. Bailey said second-round inflation effects remain quite subdued, reducing the odds of an aggressive hiking cycle. The October 28 Budget arrives with fiscal headroom down from £23.6 billion to between £11 billion and £20 billion, and a poorly received Budget could push gilt yields higher. And a Fed hike on October 28 would reverse the dollar’s recent weakness.

The 100-day SMA at 1.3390 to 1.3400 is the decisive level. A daily close above it would end the bearish structure and open 1.3435 and then 1.3505.

The forecast is a break above 1.3400 targeting 1.3435 into the October 28 Budget, a gain of 69 pips. The triggers are a daily close above 1.3400, UK CPI at or above 3.1% and a credible Budget. The invalidation level is a daily close below 1.3280, which would point back to 1.3222 and 1.3180.

The risk-reward is roughly balanced. From 1.3366, the distance to the 1.3435 target is 69 pips, and the distance to the 1.3280 invalidation level is 86 pips. That is a ratio of 0.8 to 1. A wider target of 1.3505 improves the ratio to 1.6 to 1.

The verdict is cautiously bullish: hold 1.3280, break 1.3400, target 1.3435. A credible Budget and a BoE hike would put 1.3505 in play. A Budget that rattles gilts or a Fed hike would send cable back toward the 1.3137 low.

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