British Pound trades lower against Japanese Yen ahead of BoE’s policy outcome

The British Pound (GBP) is trading near 1.3490 against the US Dollar (USD) on Thursday morning. The Democrats have gained control of both the US Senate and House of Representatives in the midterm elections, a significant victory for the party. This electoral win has led to a softening of the USD against the GBP, as investors respond to the potential for a weaker dollar tied to lower Treasury yields.

Ray Attrill, head of FX strategy at National Australia Bank, suggests that the market moves, particularly in bonds, are directly linked to the election results and lower yields. The Bank of England (BoE) is expected to raise the Bank Rate to 4% at its November meeting from 3.75%, marking the first increase since August 2023. Financial markets anticipate at least three additional quarter-point rate hikes next year.

Scotiabank analysts note that the Pound is mirroring gains against the Dollar, with GBP gaining around 0.4% intraday, similar to the single-currency EUR/USD. While recent economic data has offered little fresh impetus, the focus will swiftly shift to the BoE policy decision, where a 0.25% hike is expected, according to analysts.

The upcoming daily chart shows GBP/USD maintaining a bullish bias as it holds above the 100-day Simple Moving Average (SMA) and the 20-day Bollinger middle band. The pair is nearing the upper half of the recent range, with the upper Bollinger band acting as resistance at 1.3505. A close above this level could open the path toward the July high of 1.3558 and the August high of 1.3655.

Conversely, a break below the 100-day SMA at 1.3390 and the Bollinger middle band near 1.3345 would weaken the bullish structure, exposing the lower limit of the Bollinger band at 1.3185.