- The pound has found support against the dollar heading into Tuesday’s U.S. inflation figures, although its gains remain limited by a medium-term range.
- U.S. Inflation Must Beat Consensus to Extend the Dollar’s Recovery
- The Pound Needs Solid UK Growth to Hold Its Rate Support
- The Dollar Needs Renewed Risk Aversion to Extend Its Rally
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The pound has found support against the dollar heading into Tuesday’s U.S. inflation figures, although its gains remain limited by a medium-term range.
Tuesday’s U.S. inflation figures are the main event for the dollar this week, and Thursday’s UK GDP release is the main test for the pound.
The Pound to Dollar exchange rate trades at 1.3414 at the start of the week, having recovered part of Friday’s fall after a strong U.S. jobs report revived bets on a December Federal Reserve hike.
From a technical perspective, Friday’s post-payrolls fall found support at the 21-day moving average, the blue line on the chart:
GBP/USD daily chart. Image © Pound Sterling Live, chart created with TradingView.
Should the 21-day continue to hold, GBP/USD is likely to extend its gains this week.
The 100-day moving average, the red line, is drawing the pair towards it and acts as a centre of gravity.
What do I mean by ‘centre of gravity’? It is the level GBP/USD keeps coming back to: the pair has crossed the 100-day in both directions since late October and trades just above it at the start of the week.
The 100-day sits amid the purple horizontal tramlines Pound Sterling Live is watching, which have framed trade since June apart from August’s spike to 1.3676.
Graphical horizontal resistance at 1.3502 marks the top of that range, and it capped GBP/USD on 4 November.
Support at 1.3302 and 1.3274 is a pivot band that capped the pair in early October before acting as a floor late in the month.
The floor of the range is 1.3140, which held on a closing basis on 14 October.
Pound Sterling Live looks for GBP/USD to edge higher this week, with 1.3502 the ceiling.
A daily close beneath the 21-day would change the near-term Pound to Dollar forecast, with 1.3302 the next support.
On a medium-term view, the tramlines describe a pair that is rangebound between 1.3140 and 1.3502, which limits both gains and losses.
Last week’s Week Ahead Forecast looked for gains towards 1.3506, and GBP/USD reached 1.3503 on Wednesday, three pips short.
The pair then fell back to 1.3352 by Friday’s close, when U.S. payrolls of 165,000 beat a consensus of 70,000.
U.S. Inflation Must Beat Consensus to Extend the Dollar’s Recovery
The dollar will take its next direction from Tuesday’s October inflation figures, which the Bureau of Labor Statistics publishes at 13:30 UK time.
Consensus looks for consumer prices to rise 0.3% on the month, after 0.6% in September, and for core prices, which exclude food and energy, to rise 0.2%, after 0.3%.
The release will carry no annual rate, because the October 2025 price data were never collected during last year’s government shutdown.
Money markets price around an 80% chance of a December Fed hike following Friday’s jobs report, up from 69% beforehand.
Under the playbook, a reading above consensus would lift the dollar and push GBP/USD lower.
A reading beneath consensus would give the pound room to extend its gains.
ING forecasts a 0.3% rise in both headline and core prices, “that should help cement expectations for a December Fed hike (19bp priced in), making the swap curve more protected from other equity market shocks,” says the Dutch bank.
Bank of America’s economists see the risks to their own forecast tilted higher after two months of upside surprises, “if core CPI prints 0.3% m/m Fed pressure will rise,” says the U.S. bank.
Producer price figures on Friday and speeches from around two-thirds of Fed policymakers through the week are second-tier events.
The Pound Needs Solid UK Growth to Hold Its Rate Support
The pound faces its own test on Thursday, when the Office for National Statistics releases third-quarter GDP figures at 07:00.
Consensus looks for growth of 0.7% in the quarter and no change in September.
Deutsche Bank expects public spending and business investment to outpace household consumption in the quarter, “Q3-26 GDP, we think, will have jumped by 0.7% q-o-q – marking yet another strong quarter for the UK,” says Sanjay Raja, Chief UK Economist at Deutsche Bank.
Under the playbook, growth ahead of consensus would support sterling.
Growth short of consensus would undermine it.
Pantheon Macroeconomics says the figures matter for the Bank of England’s December decision, “last week’s unanimous 25bp MPC hike was more hawkish than our eight-to-one call, bringing a December move within reach,” says the research consultancy.
Money markets give a second Bank of England hike in December roughly even odds.
The Dollar Needs Renewed Risk Aversion to Extend Its Rally
The dollar rallied last week as the selloff in U.S. technology stocks spread to global markets.
ING expects the dollar to give back some of those gains unless the selloff resumes, “Friday’s move looked a bit too stretched relative to short-term market drivers,” says ING.
Goldman Sachs expects the U.S. economy to limit any dollar decline, “while the election outcome has opened new paths towards a weaker Dollar, the US economy is likely to keep those risks in the distance,” says the U.S. investment bank.
Pound Sterling Live’s House View modelling holds that the dollar draws its strength from Fed expectations, so the stock market selloff moves GBP/USD only when it shifts the odds of further Fed hikes.
