British Pound stays weak below 1.3250 as USD bulls retain control ahead of FOMC Minutes

GBP/USD meets with a fresh supply on Wednesday amid resurgent USD demand.
Geopolitical risks and elevated US bond yields provide a goodish lift to the buck.
BoE rate hike bets could support the GBP as traders await the FOMC Minutes.

The GBP/USD pair weakens further below mid-1.3200s during the first half of the European session on Wednesday, eroding a major part of the previous day's move higher amid a broadly firmer US Dollar (USD). Spot prices, however, remain confined in a familiar range held over the past two weeks or so as traders keenly await the release of FOMC Minutes before placing fresh directional bets.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The US macro data released last week pointed to moderating inflation and a slight cooling in the labor market, easing pressure on the Federal Reserve (Fed) to raise interest rates. Markets, however, are still pricing in around an 85% chance that the US central bank will raise borrowing costs by the end of this year. Hence, the FOMC Minutes would be scrutinized closely for more cues about the Fed's policy path. The outlook, in turn, will influence the USD and provide some meaningful impetus to the GBP/USD pair.

Heading into the key event risk, persistent geopolitical uncertainties stemming from ongoing conflicts in the Middle East continue to act as a tailwind for the safe-haven buck. In the latest developments, Saudi-backed Yemen's internationally recognized government forces claimed control over strategic points along the Red Sea coast, including areas around the Bab al-Mandeb Strait. Adding to this, the Iran-backed Houthi group in Yemen retaliated by attacking key targets in Saudi Arabia, including an Aramco refinery in Riyadh.

Moreover, Iran has ramped up its pace of attacks in the Strait of Hormuz over the past week, helping crude oil prices hold above a one-month low touched on Tuesday. Meanwhile, the recent global bond rout keeps US Treasury yields close to multi-year highs, which is seen as another factor underpinning the USD. The British Pound (GBP), however, could draw support from bets for tighter monetary policy ‌from the Bank of England (BoE), warranting caution before placing fresh bearish bets on the GBP/USD pair.

UOB sees limited upside for GBP

Strategists at UOB Group note that their expectation for GBP/USD to “range-trade between 1.3195 and 1.3245” proved incorrect after the Pound “rose to a high of 1.3286.” They acknowledge that “upward momentum has increased, albeit not significantly,” and now judge that “today, there is a chance for GBP to retest 1.3285.” However, they add that “a continued rise above this level is unlikely,” with the “major resistance at 1.3315” also “unlikely to come under threat.” On the downside, UOB highlights “support is at 1.3240, followed by 1.3220.”

GBP/USD 4-hour chart

Technical Analysis

The recent range-bound price action witnessed over the past two weeks or so could be categorized as a bearish consolidation phase against the backdrop of the decline from the August swing high. Moreover, the GBP/USD pair trades beneath the 100-period Simple Moving Average (SMA) dynamic barrier on the 4-hour chart, suggesting that rallies are vulnerable while the broader structure leans lower.

The said barrier, near 1.3300, coincides with the top boundary of the trading range. Sustained strength above this barrier is needed to ease bearish pressure and open the way toward higher levels. On the downside, bears might await some follow-through weakness below 1.3180 before placing fresh bets and positioning for an extension of the downfall from the August monthly swing high near 1.3675..

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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