The GBPUSD pair is trading near 1.33000, bouncing back from the slump it saw in the first half of October. The British pound has two things going for it: expectations that the Bank of England (BoE) will keep tightening, and a UK economy that is holding up better than many anticipated.
The big catalyst on the horizon is the regulator's meeting in early November, where an interest rate hike looks highly likely. Borrowing costs are currently parked at 3.75%, though inflation just won't quit, pushing the odds of another move up. A Reuters survey shows that most macroeconomists are betting on a 25-basis-point increase to 4.00%. And it's not hard to see why—the UK Consumer Price Index (CPI) is still sitting at 3.1%, well above the central bank's 2% target. Add rising energy prices to the mix, and policymakers have reason to be wary, as these costs could reignite inflation in the months ahead. In short, a November rate hike is very much on the table, which keeps the pound in demand.
There is one more piece to this puzzle. Just as important for the pair is the Federal Reserve's (Fed) meeting on October 27–28. After hiking rates to 4.00% in September, the central bank has left markets guessing about its next step. Recent US inflation data have stoked expectations for another increase, but officials are staying calm for now. If the regulator stands pat and avoids hinting at a new move anytime soon, the dollar's rally could lose steam, giving the pair room to climb.
The final recommendation:
— Buy GBPUSD at the current price (1.33000), aiming to reach 1.38700 within one month.
— To keep risk in check if the market moves against us, place a Stop Loss order at 1.30000.
This content is for informational purposes only and is not intended to be investing advice.
