The pound traded slightly lower against the dollar in Asian trading on Monday (November 2nd), currently hovering around 1.3385. Traders are inclined to wait and see ahead of key events this week. The Bank of England's interest rate decision will be the focus on Thursday, while attention will turn to the US October jobs data on Friday. Economists surveyed by the media expect the Bank of England to raise its interest rate from 3.75% to 4.0% at its November policy meeting on Thursday. This would be the first rate hike since August 2023, when inflation was still above the central bank's 2% target. A hawkish bet from the Bank of England could provide some support for the pound against the dollar. Alexander Harvey, a UK economist at Oxford Economics, said: "While we don't expect the committee to give clear guidance on how many rate hikes it plans to raise, the minutes or Governor Bailey could signal that interest rates are unlikely to reach the levels priced into the financial markets." The US midterm elections and jobs report will be closely watched this week. Non-farm payrolls are expected to show an increase of 65,000 in September, with the unemployment rate expected to remain unchanged at 4.2% over the same period. Any signs of improvement in the US labor market could boost the dollar and create headwinds for the currency pair in the short term.

Fiscal Policy and Growth: Budget stabilizes expectations, fundamentals provide relative support.

OCBC strategists noted that despite fiscal pressures from rising energy costs, the pound “performed better than expected,” with the latest UK budget seen as a key stabilizing factor. They pointed out that the budget “did not exacerbate these concerns” because it “adhered to fiscal rules and retained a £15 billion stabilization buffer after absorbing some of the impact of the Middle East conflict.” The bank added that the broader UK context “remains relatively supportive.” Growth “has proven resilient,” with the Office for Budget Responsibility raising its 2026 growth forecast to 1.2%. In the bank’s view, “greater political stability and fiscal discipline should continue to provide relative support for the pound,” while “closer UK-EU economic ties could provide additional medium-term tailwinds.”

Tightening is fully priced in: the threshold for further upside for the pound is rising.

However, the bank warned that "the era of easy profits may be over." OCBC Bank pointed out that the market "has already priced in an aggressive Bank of England tightening cycle, with the November rate hike highly priced in, and significant further tightening priced in until 2027." With "a large amount of tightening already priced in," the bank concluded that "the threshold for the next phase of sterling upside is becoming increasingly high." The market has already fully priced in the Bank of England raising interest rates to 4.0% at this week's meeting and has a high price for further tightening. This means that even if the rate hike is implemented, its marginal boost to the pound may be limited unless official guidance significantly exceeds expectations. If the meeting minutes or the governor's statements suggest that the peak interest rate is lower than the market's pricing, it could trigger profit-taking and downward pressure. In this highly priced environment, the pound's upside will depend more on actual data improvement or hawkish policy communication than simply the rate hike itself. Traders' tendency to wait and see before this week's key events also reflects a cautious assessment of the adequacy of the pricing. Overall, the market has already factored in a large amount of tightening expectations. For the pound to break through its current range, it will need stronger fundamental or policy signals, which significantly raises the bar.

Hawkish tone: Wage deflation stagnates, supporting interest rates to remain high for longer.

Bank of England policymaker Greene emphasized that wage de-inflation has stalled at a level above 2% inflation in line with expectations, and believes that policy should proactively guard against the risk of a second round of inflation. This reinforces the tendency for UK interest rates to remain high for an extended period, providing marginal support for the pound. Greene stated that the risk of a second round of inflation is greater than previously thought, even though forward-looking data shows wage growth closer to 3.5% and the economy exhibiting unexpected resilience, suggesting limited willingness to ease in the near term. His statement that labor market easing may have peaked highlights concerns about renewed wage pressures, consistent with a stable-hawkish stance. This has dampened expectations of a significant interest rate cut by the Bank of England and supported the pound's performance relative to other currencies. Stagnant wage de-inflation implies that cost-push inflationary pressures persist, and the central bank needs to maintain higher interest rates to prevent inflation expectations from becoming unanchored. The assessment that labor market easing has peaked further reinforces this view, indicating limited room for easing. The continued statements from hawkish policymakers help solidify market expectations of a "longer, higher interest rate" path, providing policy support for the pound. Ahead of this week's interest rate decision, such comments reduce the likelihood of a significant dovish shift, keeping the pound relatively stable before key events.

in conclusion

The pound is currently trading around 1.3385 against the dollar, with the market heavily pricing in a Bank of England rate hike to 4.0% on Thursday – which, if implemented, would be the first such hike since August 2023. Fiscal discipline, political stability, and improved UK-EU relations are providing relative support for the pound, while Greene's hawkish comments have reinforced expectations of higher interest rates for an extended period. However, analysts warn that an aggressive tightening cycle has already been fully priced in, with a November rate hike and further tightening in 2027 already in the market, raising the bar for the pound's next upward move. Short-term direction hinges on the wording of Thursday's Bank of England decision and Friday's US jobs data – if improvements in the US labor market boost the dollar, the pound will face headwinds. (GBP/USD daily chart, source: FX678) At 12:10 Beijing time, GBP/USD was trading at 1.3389/90.