GBP/USD has taken a significant step toward a new bullish impulse within its yearly trading range. Liquidity was swept below the June 24 low, allowing bullish traders to push the pair 260 points higher. This was followed by a reaction to the bearish imbalance from the 29th, a corrective pullback, a reaction to the bullish imbalance from the 31st, a reversal in favor of the pound, and another advance toward the imbalance from the 29th. A new corrective pullback does not fit the broader picture at this stage, although that does not mean it is entirely out of the question. The Bank of England is expected to tighten monetary policy this week, which should support bullish traders. The Federal Reserve, in turn, did not support bearish traders to the extent they had probably anticipated. Their main hope may have been for Kevin Warsh to make an explicit commitment to further monetary policy tightening next year. There is little uncertainty surrounding the December meeting. In my view, traders have already priced in the news that was bullish for the dollar. Now it is the pound's turn. Ahead of the U.S. elections, the dollar continues to weaken, although another reaction to the imbalance from the 29th and a sell-side liquidity sweep below the previous swing low remain possible.
An important factor for the pound's outlook is that traders expect three monetary policy tightenings from the Bank of England, compared with only one or, at most, two from the Federal Reserve. The dot plot also indicates one policy tightening over the coming year, while the latest FOMC minutes confirmed that most central bank officials expect only one rate hike. Of course, it is impossible to know how events will unfold in 2027, but that is the current weighted-average forecast. Consequently, the Bank of England could raise interest rates more aggressively than the Federal Reserve over the coming months, which would clearly not support further gains in the U.S. dollar. The dollar has already benefited extensively from expectations of tighter Fed policy, and the market may now begin pricing in tighter Bank of England policy. Geopolitical developments are currently the only factor supporting the dollar.
If the Federal Reserve had not raised interest rates in September and signaled its readiness to continue tightening monetary policy, a decline in the U.S. dollar would have been expected a month ago. That expectation remains in place. In the long term, the outlook for the pound remains bullish.
Do bearish traders still have room to push the market lower? In my view, their remaining potential is limited. Over the past two months, bearish traders appear to have pushed the dollar to levels that are relatively high by current standards. It is worth remembering that the market had compelling reasons to buy the dollar in 2026, but there were also reasons for the pound to strengthen that traders simply overlooked. As a result, a reversal began several weeks ago, and this move is far more consistent with the underlying fundamentals than the preceding decline.
Monday's economic news did not trigger the pound's advance. The first significant report was released only toward the end of the day, while bullish traders had been pushing the pair higher with confidence throughout the session. Consequently, geopolitical developments and U.S. politics are likely to remain the main focus for the market until Thursday and Friday. After that, attention will shift to the Bank of England meeting and U.S. labor market data.
The overall fundamental backdrop remains such that a long-term decline in the U.S. dollar is the only outcome that appears likely. The war between Iran and the United States has not changed this outlook. Geopolitical developments prompted the market to focus on the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The FOMC's future monetary policy remains uncertain, while the market continues to anticipate tighter policy. This is the main reason bearish traders remain optimistic. However, traders are still overlooking the prospect of tighter Bank of England policy. Inflation in the United Kingdom is rising, as it is around the world, leaving the Bank of England with little choice but to raise interest rates as well.
Economic Calendar for the United States and the United Kingdom
- United States – JOLTS Job Openings (15:00 UTC).
- United States – Congressional elections.
The economic calendar for November 3 contains two notable events. Their impact on market sentiment on Tuesday may be relatively limited.
GBP/USD Forecast and Trading Advice
The long-term outlook for the pound remains bullish. Bearish traders have controlled the market in recent weeks, but the trading range clearly visible on the daily chart remains intact. A liquidity sweep below the May 1 swing low triggered a decline within the horizontal range. However, liquidity was also swept below the June lows, allowing bullish traders to regain control. Therefore, the short-term outlook is considered bullish.
For traders, this means that existing long positions should be maintained for now. Last week, a buy signal formed within the imbalance from the 31st, providing an opportunity to open new long positions. It remains unclear whether the pair will react to the imbalance from the 29th for a second time, potentially triggering another corrective pullback, as the news flow over the coming days could provoke a wide range of market reactions. Nevertheless, further appreciation of the pound remains the more likely scenario. The pound's target is near the upper boundary of the trading range at 1.3670. It is also worth noting that a new bullish imbalance formed last Thursday, which should provide support for bullish traders.
