The GBP/USD pair continues to rise within its annual range. Liquidity was swept from the June 24 low, allowing bulls to launch their first attack. This was followed by a reaction to bearish imbalance 29, a corrective pullback, a test of bullish imbalance 31, a reversal in favor of the pound, and a new upward impulse. There was no second reaction to imbalance 29. A new bullish imbalance 32 formed below, and, thanks to this week's developments, traders showed no desire to return to it.
Today, the Bank of England delivered its first monetary policy tightening, which could have supported bullish traders. However, the market reaction to this undoubtedly hawkish event was rather mixed. Bulls did not resume their advance, although the Bank of England's meeting outcome can be considered the most hawkish possible. Not only did the Bank of England raise interest rates, as expected, but the entire Monetary Policy Committee (MPC) also voted unanimously in favor of monetary policy tightening. Thus, there is every reason to expect further policy tightening, possibly even in December. If a new corrective pullback begins now, it will not be a disaster for the pound. Bullish imbalance 32 remains below, providing traders with an opportunity to open new long positions within the current impulse. Pullbacks exist precisely to provide opportunities to enter the market.
An important factor for the pound's outlook is that traders expect three rounds of monetary policy tightening from the Bank of England, compared with just 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 this is the current consensus forecast. Thus, the Bank of England may ultimately raise interest rates more aggressively than the Fed in the coming months, which is clearly unlikely to support the US dollar. In the near term, only geopolitical developments could support the dollar if Donald Trump decides to resume the war with Iran. It is also worth noting that the euro and the pound should not be compared at this stage. These two currencies have been trading in completely different ways lately.
Do bears have any prospects? In my view, they are limited. Over the past two months, bears have pushed the dollar to the highest levels within the range. It is worth recalling that the market had compelling reasons to buy the dollar in 2026, but there were also reasons for the pound to strengthen, which traders often overlooked. Thus, the reverse movement began several weeks ago, and it is much more justified by market fundamentals than the preceding decline.
The economic news flow on Thursday supported a continuation of the bulls' advance, but instead of another advance, the market paused. Nevertheless, this pause could be short-lived, as important US labor market reports are due tomorrow. These could trigger either a new pullback or another upward move. Following the formation of a buy signal within imbalance 31, either outcome would be acceptable for traders.
The overall fundamental backdrop remains such that, in the long term, the only scenario I can envisage and expect is a decline in the US dollar. The war between Iran and the United States has not changed this outlook. Geopolitical developments prompted the market to reconsider the dollar's safe-haven status for several months, but the conflict is currently on hold. Therefore, until hostilities resume, a new bearish advance is not expected. Unfortunately, further escalation remains possible, and the media are increasingly using the phrase "nuclear bomb" in their reports. According to some media outlets, Trump may decide to use one to secure Iran's unconditional surrender. It can only be hoped that these reports are untrue.
Economic Calendar for the United States and the United Kingdom:
- United States – Change in Nonfarm Payrolls (13:30 UTC).
- United States – Unemployment Rate (13:30 UTC).
- United States – Change in Average Hourly Earnings (13:30 UTC).
- United States – University of Michigan Consumer Sentiment Index (15:00 UTC).
On November 6, the economic calendar contains four releases, with Nonfarm Payrolls and the Unemployment Rate being the most important. The economic data could have a significant impact on market sentiment on Friday.
GBP/USD Forecast and Trading Tips:
The long-term outlook for the pound remains bullish. Bulls have controlled the initiative in recent weeks, but only within the trading range, which is clearly visible on the daily chart and remains intact. The liquidity sweep below the June lows allowed bulls to seize the initiative. Therefore, the local outlook is considered bullish. For traders, this means that existing long positions should be maintained for now, while new bullish signals should be acted upon if they emerge. A buy signal formed within imbalance 31 last week. This week, bullish imbalance 32 formed, and a new signal could emerge within it in the near future. The pound's targets are located near the upper boundary of the range at 1.3670.
