GBP/USD Holds Near Six-Week Low Around 1.34 After Hawkish Fed and BoE Rate Hold

Key Takeaways

• GBP/USD is holding near a six-week low around 1.34 after the Federal Reserve raised interest rates by 25 basis points and reinforced expectations that US policy could remain restrictive.
• The Bank of England kept Bank Rate at 3.75%, but a 6–3 vote revealed that three policymakers preferred an immediate increase to 4.00% as inflation risks intensified.
• The 1.3340 area is the main near-term support, while a sustained recovery would need to clear resistance around 1.3490–1.3500.

GBP/USD Remains Under Pressure Near 1.34

GBP/USD remained subdued near 1.34 on Friday as currency markets continued to assess a hawkish Federal Reserve rate increase and the Bank of England’s decision to leave borrowing costs unchanged. The pair was trading close to its lowest level in six weeks after the widening contrast between US and UK policy actions strengthened the dollar and limited demand for sterling.

The immediate direction of the pound now depends on whether buyers can defend the 1.3340 support area. A break below that zone could extend the recent decline, while stabilization would leave the pair with room to test 1.3490–1.3500. Any recovery, however, may require softer US data, less-hawkish Fed expectations or clearer evidence that the BoE is moving closer to another increase.

Hawkish Fed Rate Increase Strengthens the US Dollar

The Federal Open Market Committee raised the federal funds target range by 25 basis points to 3.75%–4.00% at its September meeting. The decision was unanimous and represented a direct response to inflation that remains above the central bank’s 2% objective.

Although the size of the increase was widely anticipated, the accompanying message was firm enough to support the dollar. The Fed described US economic activity as expanding at a solid pace, with resilient domestic spending, robust investment and limited change in unemployment. These conditions may give policymakers greater scope to keep rates elevated or tighten further if price pressures do not ease sufficiently.

The dollar subsequently climbed to a six-week high against a basket of major currencies. For GBP/USD, the reaction reflected not only the rate increase itself but also a reassessment of the likely US policy path. If traders expect US rates to remain higher for longer, the relative yield appeal of dollar-denominated assets may continue to weigh on sterling.

The Fed’s decision also increased the importance of incoming US inflation, employment and activity data. Strong releases could reinforce expectations of another rate increase, while weaker numbers may reduce the dollar’s advantage and allow GBP/USD to recover from its recent lows.

Bank of England Holds at 3.75% Despite Higher Inflation

The Bank of England kept Bank Rate unchanged at 3.75%, as expected, but the Monetary Policy Committee was divided. Six members supported the hold, while three preferred a 25-basis-point increase to 4.00%.

The split vote provided a more hawkish signal than an unchanged headline rate might suggest. UK consumer price inflation rose to 3.1% in August, placing it well above the BoE’s 2% target. Policymakers also warned that inflation could rise further as higher crude oil, natural gas and refined-product prices pass through to households and businesses.

Energy costs have become a central challenge for the UK outlook. Elevated oil prices can raise transport and production expenses while weakening household purchasing power. This creates a difficult policy trade-off: tighter monetary policy may be needed to prevent inflation expectations from becoming entrenched, but higher rates would also increase pressure on borrowers and economic demand.

The majority of the committee chose to wait for clearer evidence that the energy shock was producing broader second-round effects in wages and prices. Even so, the BoE judged inflation risks to be tilted further to the upside and indicated that it was prepared to act if necessary.

That message has not yet been enough to generate a sustained sterling rebound. The Fed delivered an actual rate increase, while the BoE delivered only a divided hold and a conditional warning. The near-term policy gap therefore remains more supportive of the dollar.

Why Sterling Failed to Benefit From the BoE’s Split Vote

Three votes for an immediate increase would normally offer some support to the pound because they signal that part of the committee sees a need for tighter policy. In the current environment, however, the signal has been offset by the BoE’s broader caution and the strength of the dollar response to the Fed.

The UK economy is also facing a less favorable combination of inflation and growth risks. Higher energy costs can lift headline inflation while simultaneously restraining consumption and business activity. This makes it harder for the BoE to match the Fed’s tightening path without increasing the risk of a sharper domestic slowdown.

Sterling could gain support if additional MPC members move toward a rate increase or if UK inflation and wage data remain persistently strong. Yet such data would also underline the economic cost of the energy shock. As a result, the pound’s response may depend on whether markets interpret stronger inflation as a reason for tighter policy or as a threat to UK growth.

GBP/USD Technical Levels: Can 1.3340 Support Hold?

The 1.3340 area is the main near-term level to watch. Holding above this zone could indicate that selling pressure is beginning to ease after the pair’s decline to a six-week low. It would also preserve the possibility of a corrective move toward 1.3490–1.3500.

The resistance zone near 1.35 is important because a sustained move above it would suggest that the pair is rebuilding upward momentum rather than simply experiencing a brief rebound. Until that happens, recoveries may remain vulnerable to renewed dollar demand.

A decisive break below 1.3340 would weaken the short-term structure and could encourage traders to look toward lower support areas. Technical levels should not be viewed in isolation, however. Changes in interest-rate expectations, energy prices and risk sentiment could quickly alter the direction of the pair.

What Could Drive the Next GBP/USD Move?

The clearest bullish scenario for GBP/USD would combine a softer dollar with a more hawkish UK policy outlook. Slower US inflation, weaker labor-market data or signs that the Fed is unlikely to raise rates again could reduce the dollar’s yield support. At the same time, persistent UK inflation or stronger wage growth could increase expectations that the BoE will lift Bank Rate at a later meeting.

The bearish scenario would involve continued US economic resilience and further evidence that the Fed may need to tighten again. Renewed increases in oil prices could add to the pressure by worsening the UK’s inflation-growth trade-off, even if they also increase the likelihood of a BoE response.

For now, GBP/USD remains caught between tentative support near 1.3340 and resistance around 1.3500. The BoE’s divided vote has kept the possibility of tighter UK policy alive, but the Fed’s completed rate increase and the dollar’s broader strength continue to define the short-term trend.