BOE Preview: Hawkish Hold Incoming

The Bank of England is set to hold rates for a sixth straight meeting today, but a hawkish tone could hand GBPUSD a relief rally after a bruising week for sterling.

Wednesday's Federal Reserve hike lit a fire under the dollar, dragging cable below its 200-day moving average and toward July's lows. The Bank is still expected to hold Bank Rate at 3.75%, but with UK inflation running hot and gilt yields near multi-decade highs, the vote split and guidance in today's minutes matter more than the decision itself.

Latest Market Moves

• GBP/USD trades around 1.3385 in early Thursday trade, sitting below its 200-day moving average and the broken 1.3450-1.3490 support shelf after Wednesday's hawkish Fed move.

• The Fed funds rate rose 25 basis points to a 3.75%-4% range on Wednesday, the first US hike since 2023, with Chair Kevin Warsh saying the Fed still has “work to do” on inflation.

• UK 30-year gilt yields held near 5.90% and UK 10-year gilt yields near 5.34% into Wednesday's close, both close to the multi-decade highs hit earlier this month.

• UK annual CPI accelerated to 3.1% in August, leaving the BoE little room to sound dovish even as it's expected to hold rates today.

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What to Expect From Today's Decision

The announcement lands at 12pm UK time, with the Monetary Policy Summary and minutes published simultaneously.

There's no press conference or Monetary Policy Report attached to this meeting; those come only in February, April, July and November, with the next one due 5 November. That leaves the vote split and the tone of the minutes as the main signal, and the Bank is widely expected to hold Bank Rate at 3.75% for a sixth straight meeting.

August's UK inflation held at 3.1% annually, and money markets are pricing a strong chance of a first hike as soon as November if energy costs stay elevated. A hold that leans hawkish in tone, or a tighter vote split than usual, is the scenario likeliest to spark the relief rally sterling bulls are after.

The Fed Just Made the Dollar's Case

Wednesday's Fed hike gave the dollar the upper hand before the BoE even meets.

The Federal Open Market Committee voted unanimously to lift rates by 25 basis points to a 3.75%-4% range, its first increase since 2023. Chair Kevin Warsh pointed to US inflation still running at 3.4% annually and oil prices rising on the Iran conflict, saying the Fed “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed” before it's finished.

The dollar has pushed to its strongest level since late July on the back of it, dragging cable below its 200-day moving average in the process.

Gilts, Burnham, and a Budget the Market Is Already Pricing

Rising gilt yields would normally cushion the pound, not weigh on it.

UK 30-year yields sat near 5.90% and 10-year yields near 5.34% into Wednesday's close, both within reach of the multi-decade highs hit earlier this month. Prime Minister Andy Burnham has talked about seeking “flexibility” within the UK's fiscal rules since taking office in July, and the spending commitments already on the table have unnerved a bond market that's watching the upcoming Budget closely.

Chancellor John Healey insists the Budget will stick to fiscal discipline, but fiscal headroom has roughly halved since the spring on the back of higher borrowing costs. Investors are treating the rise in yields as a risk premium rather than a reason to buy the pound, which is why sterling has struggled even as UK rates push higher.

GBP/USD Technical Outlook

Price has slipped below both the multi-month rising trendline off the June low and the 1.3450-1.3490 shelf that had held as support since July, with cable changing hands near 1.3385 heading into today's decision. That old shelf is now the first hurdle for any relief rally: reclaiming it would open the door back toward August's 1.3630-1.3680 range, while a rejection keeps sellers in control.

The 14-period RSI has dropped to 27.3, its most oversold reading since June's slide, which raises the odds of a bounce even before the announcement lands. Support below current levels sits at the 30 July low of 1.3333, with the 28 July low of 1.3274 the next marker down if that gives way.

Source: SpreadEx | GBP/USD, 8-Hour Chart