After a strong Monday that raised hopes for a sustained rise in the British pound, the GBP/USD pair plunged by 190 points. The latest decline over the past few days was once again triggered by US economic data. October inflation rising by 0.4% m/m was enough to send the dollar sharply higher. The dollar continued to rise for three full days, even though Wednesday and Thursday brought no significant events supporting the US currency. In my view, we are once again witnessing a move that traders had been eager to make. In other words, the dollar is not rising because of strong inflation, a robust labor market, or low unemployment. It is rising because the market is strongly inclined to buy it.
This week, it became known that the Bank of England could raise its interest rate four times in total. This was stated by representatives of the British economic research institute NIESR. Inflation in the UK is also rising and could reach 5% next year. Consequently, the Bank of England will have to raise rates at least three times and, more likely, four times. Would you expect this clearly hawkish information to have a positive impact on the pound? On Thursday, UK GDP reports were released and showed fairly positive figures, but traders paid virtually no attention to them. On Friday, the US Producer Price Index (PPI) was released and came in below forecasts. The market did not respond to these negative developments for the dollar with a decline in the US currency. The pair fell to an order block, and only this order block may prevent a further collapse.
Last week, the Bank of England delivered its first monetary policy tightening. Traders' reaction to this event was rather mixed. The bulls did not resume their advance, even though the outcome of the Bank of England meeting could be considered as hawkish as possible. The Bank of England's policymakers not only raised interest rates, as expected, but also did so unanimously. However, traders considered US inflation and labor market reports more important, as these also increase the likelihood of further monetary policy tightening. Nevertheless, the market currently views Fed rate hikes differently from Bank of England rate hikes.
An important factor for the pound's outlook is that traders expect the Bank of England to deliver at least three monetary policy tightenings in total, while the Fed is expected to raise rates only once or twice at most. Admittedly, it is impossible to know how events will unfold in 2027, but this is the current weighted-average forecast. Therefore, the Bank of England could ultimately raise rates even more than the Fed, which is clearly unlikely to support the US currency. Geopolitical developments could support the dollar in the near future if Donald Trump decides to resume the war with Iran. However, in recent days, Donald Trump has spoken more often about reconciliation, negotiations, and concessions than about launching new strikes. Therefore, Iran and the United States may finally have embarked on a path toward a ceasefire.
Do bears have any prospects? In my view, their prospects are limited. The bears have pushed the dollar to the upper boundary of the current trading range, but they still cannot break out of it. There have been several compelling reasons to buy the dollar in 2026, but there have also been reasons for the British currency to rise, which traders have often overlooked. Thus, unlike the euro, the dollar and the pound have generally experienced a fairly logical year, with alternating periods of gains and losses that have ultimately kept the pair within a trading range.
On Friday, the economic news flow once again gave the bulls an opportunity to launch at least a modest advance. The US Producer Price Index came in below traders' expectations. According to this report, inflation increased slightly less than anticipated. It is worth recalling that a somewhat stronger rise in headline inflation triggered a three-day rally in the dollar. As can be seen, the PPI had no impact whatsoever on the dollar's exchange rate.
The overall fundamental backdrop remains such that, in the long term, nothing other than a decline in the US currency can be expected. This is also the only outcome anticipated. The war between Iran and the United States has not changed these expectations. Geopolitical developments reminded the market of the dollar's safe-haven status, but the conflict is currently on hold and even has a chance of coming to an end. Therefore, until hostilities resume, a new bearish advance is not expected. Escalation remains possible, as Donald Trump is certainly capable of making an unconventional decision. If the latest negotiations end in the same way as all previous rounds, Trump may decide to launch new strikes. Even the Democrats may be unable to stop him.
Economic Calendar for the United States and the United Kingdom
On November 16, the economic calendar contains no significant events. The economic news flow will have no impact on market sentiment on Monday.
GBP/USD Forecast and Trading Tips
The long-term outlook for the pound remains bullish. The 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 short-term outlook is also bullish. A buy signal formed in Imbalance 32, but the pound's advance was short-lived due to strong US economic data. The pound's targets remain near the upper boundary of the trading range at 1.3670, but traders now need new bullish signals. The only way to obtain them is through a reaction to the order block. An order block is a strong and relatively rare pattern, so a rebound from it is considered highly likely. However, the first test did not produce a significant bounce.
