British Pound gathers strength to near 1.3300 on Fed policy uncertainty

The British Pound (GBP) strengthened to near 1.3300 against the US Dollar (USD) on Friday morning, driven by hawkish comments from Bank of England (BoE) Governor Andrew Bailey and better-than-expected UK Gross Domestic Product (GDP) data. Bailey stated that soaring energy prices have only limited effects on British prices, but it is premature to assess the impact of these second-round effects.

According to a Reuters poll, most economists expect the UK central bank to begin raising interest rates next month, following a pause since the US-Iran war began in February. In contrast, Federal Reserve (Fed) member Kevin Warsh offered no indication of the October policy decision. Fed Chairman emphasized that he does not anticipate interest-rate decisions, providing no hints about whether the central bank will hike or hold steady at the October 27-28 meeting.

The markets now price in a 27.1% likelihood of a rate hike later this month, as per the CME FedWatch Tool. Despite increased volatility, analysts at UOB Group maintain an unchanged medium-term outlook for GBP/USD, noting that GBP is expected to trade between 1.3135 and 1.3280. The current price actions suggest that the decline to 1.3137 is more of a range expansion than a sustained decline.