Pound Stuck in Narrow Range Amid Rate Hike and Gilt Yield Tension
The British pound (GBP) traded at 1.3247 against the US dollar (USD) on Tuesday, up 0.20% from Monday’s close of 1.3221. The pair has been confined to a narrow range of 1.3182 to 1.3256 for the past three sessions, with Tuesday’s low matching Friday’s open. The longer-term view shows sterling stuck between a central bank preparing to raise rates and a bond market punishing the currency due to rising gilt yields.
The Bank of England (BoE) held its Bank Rate at 3.75% in September, with three members voting for a hike. Markets expect 36 basis points of tightening by year-end, but the pound has not benefited as gilt yields have surged. The 10-year gilt yield stands at 5.39%, and the 30-year yield crossed 6% last week, its highest since 1998. Investors selling gilts due to inflation and fiscal risks have also weighed on the pound.
Four key events between now and November 5 could resolve this tension: BoE speakers on Thursday, the UK Budget, the Federal Reserve decision on October 28, and the BoE’s own decision a week later. Until then, the bias remains neutral to mildly bearish, with rallies likely to meet sellers around 1.3340 to 1.3358.
Tuesday’s session saw a 47-pip range for GBP/USD, with sterling benefiting from falling oil prices, a weaker dollar, and improved risk appetite. The pound dipped to 1.3201 early in the day but recovered as crude oil extended its decline and European equities gained. Against the euro, sterling gave back some of Monday’s gains as French bond markets calmed.