British Pound Tests Six-Week Highs As Traders Brace For BoE Tightening

• GBP/USD rallies for the third consecutive day and reaches six-week highs at the 1.3420 area.

• UK Gilt yields dropped, and the Pound accelerated its recovery after the release of the UK's 2026 budget.

• Hopes of a BoE rate hike next week are providing additional support to the GBP.

The British Pound (GBP) rallies for the third consecutive day against the US Dollar (USD) on Friday, following a soothing UK budget earlier this week, with the focus on a widely expected interet rate hike by the Bank of England next week. The GBP/USD pair is pushing against six-week highs around 1.3420 as of writing, on track to complete a three-week rally.

UK Nationwide Housing Prices remained flat in October, according to data released on Friday, beating expectations of a 0.2% contraction and following a 0.3% decline in September.

UK budget calmed markets and sent the Pound rallying

Pound traders keep celebrating a neutral UK budget, which had triggered some anxiety amid the high public debt and the turmoil in bond markets. The budget seems to have calmed markets, at least for now. The yield of the UK 10-year bond has dropped nearly 10 basis points since Wednesday, the day when the budget was released, which has provided a fresh boost to the Sterling.

Investors' focus has shifted to the Bank of England, which will release its monetary policy decision next week. Recent macroeconomic data revealed that the UK economy keeps growing, while inflation remains well above the bank’s target, which has prompted markets to nearly fully price in a 25-basis-points rate hike next week.

Regarding the USD, Analysts at ING warn about the US midterm elections risk: “A Democratic sweep is trading around 68% in prediction markets,” which, according to the experts, “could be seen as slightly negative for the US dollar from a few angles,” ranging from “higher risk of government shutdown and gridlock on debt ceiling negotiations” to “potential damage to already shaky AI-related sentiment.” Against that backdrop, ING concludes that they “would be cautious in chasing the USD upside in the next few days.”