• GBP/USD gains ground to near 1.3240 in Monday’s early European session.
• The negative outlook for the pair prevails below the 100-day SMA, with bearish RSI momentum.
• The immediate resistance level emerges at 1.3280; the first downside target to watch is 1.3180.

The GBP/USD pair trades in positive territory around 1.3240 during the early European trading hours on Monday. The US Dollar (USD) softens against the British Pound (GBP) as markets continue to assess the US Federal Reserve (Fed) rate hike path. An escalating Middle East conflict kept traders wary ahead of key US inflation data later this week that will influence monetary policy.

The Saudi-led coalition said on Sunday that an unidentified projectile hit a passenger terminal at King Khalid International Airport in Riyadh, per Bloomberg. The Houthis swiftly claimed the attacks, saying they were a response to “Saudi aggression.”

“We expect the Houthis to continue their attacks on Saudi Arabian energy assets, supporting gains in the oil price and the USD,” analysts at Commonwealth Bank of Australia said in a note.

The US Consumer Price Index (CPI) report will be published on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales data on Thursday. If the reports come in hotter than expected, this could reinforce the Fed to raise the interest rate, supporting the Greenback.

BoE hikes back on the table as Commerzbank shifts EUR/GBP view

Analysts at Commerzbank argue that the UK’s “improved growth outlook should make it easier for the Bank of England to raise rates further in order to lean against inflation.” They note that “until now, we had not expected the BoE to hike rates again,” but “recent developments…have led us to conclude that a November rate hike is now more likely than not.” Moreover, they stress that they “do not expect it to be a one-off move,” and now “anticipate another hike in February, taking Bank Rate to 4.25%.”

Commerzbank points out that “the market is also pricing in two additional rate hikes by February, meaning our revised call should have little immediate market impact.” This shift also prompts a reassessment of their currency view: “we had previously expected sterling to weaken towards year-end. We now expect EUR-GBP to trade broadly sideways over the coming months.”

Looking further ahead, the bank cautions that “it is only from the second quarter of next year that we expect sterling to come under renewed pressure against the euro.” They highlight that “the market currently prices in two further rate hikes beyond the two moves we expect, implying four hikes in total.” In their view, “following the February meeting, we expect those additional tightening expectations to be gradually priced out, putting sterling under renewed pressure.”

BoE’s Mann flags need for higher rates as risk premia no substitute for policy

FXS Speechtracker shows a 9.4 score versus an 8.1 historic average for Mann, signalling a distinctly more hawkish tone than usual. The insistence that the Bank of England “needs to raise Bank Rate” and cannot rely on risk premia to do the work of monetary policy points to a preference for additional tightening even as financial conditions have already firmed.

By stressing that tighter conditions driven by higher inflation and policy-uncertainty premia are “no comfort,” Mann effectively argues that the Pound should be supported by higher policy rates rather than by risk-driven volatility. Acknowledging that the Bank of England may not have clearly articulated the reaction function to the Middle East shock, and that not publishing a baseline forecast in April “did not help,” underscores communication gaps that have likely amplified risk premia, reinforcing the case for a clearer, more hawkish stance to anchor expectations and support the Pound.

Technical Analysis: GBP/USD retains a negative tone below the key 100-day SMA

In the daily chart, GBP/USD keeps a bearish near-term tone as spot remains lodged beneath the 20-day simple moving average and the longer-term 100-day simple moving average. The pair is holding in the lower half of its Bollinger envelope, while the 14-day Relative Strength Index around 41 stays below the midline, hinting that downside pressure still outweighs recovery attempts.

On the topside, initial resistance level is located at the 20-day Bollinger middle band at 1.3280. A deisive break above this level could pave the way to h the 100-day simple moving average at 1.3400, en route to the upper boundary Bollinger band near 1.3432 forming a broader cap if buyers attempt a rebound. 

On the downside, the next notable support level emerges at the October 1 low of 1.3180. Further south, the next contention level is seen at the lower limit of Bollinger band around 1.3130, where a clear break would open the door to a deeper slide within the broader corrective phase.