Sterling traded cautiously against major peers on Friday and was marginally firmer versus the US Dollar, hovering around 1.3220 in the European session while remaining close to an almost three-month low of 1.3200. Over the week, GBP fell 1.27% against the greenback as markets questioned hawkish Bank of England rate expectations. The swaps curve continued to imply about 100bps of BoE hikes over the next 12 months, taking Bank Rate to 4.75%, even as the current setting of 3.75% sat near the top of the BoE’s estimated 2% to 4% neutral range. The UK economy was described as operating below capacity, while fiscal policy was expected to turn more restrictive.
Sterling Performance and Bank of England Outlook
Sterling traded cautiously against major peers on Friday and was marginally firmer versus the US Dollar, hovering around 1.3220 in the European session while remaining close to an almost three-month low of 1.3200. Over the week, GBP fell 1.27% against the greenback as markets questioned hawkish Bank of England rate expectations. The swaps curve continued to imply about 100bps of BoE hikes over the next 12 months, taking Bank Rate to 4.75%, even as the current setting of 3.75% sat near the top of the BoE’s estimated 2% to 4% neutral range. The UK economy was described as operating below capacity, while fiscal policy was expected to turn more restrictive.
US Dollar Strength and Market Sentiment
The US Dollar outperformed as renewed hawkish Federal Reserve pricing followed official warnings on inflation, alongside stronger-than-projected US S&P Global PMI data for September. CME FedWatch indicated an almost 58% probability of a Fed hike at both remaining policy meetings this year. GBP/USD was at 1.3224, with spot below the 20-day EMA at 1.3402, and the RSI at 25 in oversold territory, pointing to stretched downside momentum within a continuing bearish bias.
