File image of Kevin Warsh. Sérgio Garcia/Your Image for ECB. Copyright: European Central Bank 2026.
The British pound looks likely to be drawn lower against the dollar in the days ahead, but there's a good chance Wednesday's Federal Reserve decision could turn it the other way and the pair ends the week higher.
The pound-to-dollar exchange rate starts the week sitting on the level it has pivoted around since March, with the Federal Reserve deciding on interest rates on Wednesday and this market waiting to see which side of it the week ends on.
GBP/USD trades at 1.3503 on Monday, on the 1.3506 graphical horizontal that has worked as a fulcrum since March.
The 100-day moving average at 1.3443 beneath is the level doing the attracting, and the Fed decides whether the market gets there:
Above: GBP/USD daily chart. Image © Pound Sterling Live, chart created with TradingView.
A level the market pivots around without either side keeping it works as a fulcrum, and 1.3506 has been traded from both directions since March. The past week was more of the same, with the market oscillating around the line and closing back on it.
The 100-day at 1.3443 rose through the summer and has flattened over the past fortnight. An average that stops rising marks where buyers and sellers have balanced across the period, and it draws price back towards it whenever the market strays, which is the pull working on a market as heavy as this one.
Above the market, the 21-day at 1.3558 has rolled over after rising through August, and the recovery attempt in the middle of last week failed there. The pound has not been able to get back to its own short-term trend since the decline from 1.3661 began.
Beneath 1.3506 the chart offers the 100-day at 1.3443 and then a long gap, with 1.3302 the next drawn level and 1.3274 under it. Neither is in reach of a single week, unless the Fed does something spectacularly unexpected.
A week ago we looked for 1.3506 to give way and the 100-day at 1.3442 to draw the market towards it, and said a daily close above the 21-day at 1.3552 would change our mind.
Neither branch ran, because the shelf did not give way and the 21-day was never closed above, so the market spent the week oscillating around 1.3506 and comes back to it this morning. The call is unresolved and still live, which is the effect a fulcrum has on a forecast.
For now, we forecast that the 100-day at 1.3443 to draw GBP/USD towards it, with 1.3506 the level that has to give first. A daily close above the 21-day at 1.3558 would change that, and our Pound to Dollar forecast has Wednesday as the session that settles which of the two happens.
The dollar has steadily advanced short-term after the market raised expectations the Federal Reserve would raise rates this Wednesday.
U.S. bond yields climb in response and buyers are drawn to the dollar, which pushes the GBP/USD pair lower.
FOMC Decision Lands Wednesday
Consensus: 25bp to 3.75-4.00%, roughly 90% priced. The first hike since July 2023, after five straight holds. No dissent anywhere in the pull on the outcome.
The hike is priced and we could see a buy-the-fact reaction by pound-dollar when it lands. For the pair to fall, the market must read that further hikes are coming.
Select calls:
- Bank of America: further hikes in October and December. Their reasoning is mechanical rather than judgemental, and worth using for that reason: only one more employment report and one more CPI arrive before October, so absent material softening or a dovish communication shift, the Fed continues.
- CBA: the market now prices two 25bp hikes by year-end, in line with their own view.
- BBH read the curve as already full, at almost 100bp over twelve months. Their conclusion is asymmetry against the dollar: limited upside from a hawkish outcome, greater downside from a dovish surprise.
- Pantheon note the Fed will tighten "despite merely lukewarm CPI data", which is the dissent on the quality of the case rather than the outcome.
Transmission. The move is priced, so the move comes from the vote split, the dot plot and Warsh's press conference. Hawkish: near-unanimous vote, dots aligned with pricing, signalling more. Dovish: a split vote, dots below pricing, or Warsh framing the hike as insurance rather than the opening of a cycle.
The tell from last week: Near-90% pricing produced almost no dollar follow-through. OCBC's weekly is "Hawkish Repricing, Limited USD Follow-Through"; Westpac's is "Expectations begin to shift against the US dollar". BBH's own view is that the economy does not warrant an aggressive cycle, with wage growth disinflationary and policy already somewhat restrictive against a nominal neutral near 3.00%.
So although technicals look heavy, the risk-reward around the Fed has us predicting the exchange rate could end the week higher than where it started.
The Bank Consensus, Without the Terminal
The median, mean, highest and lowest from the October survey update, plus named point forecasts out to 2027.
Free information pack, issued by World Wide Currencies.
