Sterling traded firmer on Friday as the dollar softened on pre-midterm position-trimming and renewed AI-stock jitters. UBS expects the Bank of England to start a short rate-hiking cycle next week, which adds a domestic backdrop supportive of the pound.
Sterling rose 0.41% to $1.3432 against the dollar, while the euro edged 0.20% higher to $1.1203. The pound gained 0.20% against the euro to 1.1990, as of 07:07 ET (11:07 GMT).
Dollar faces AI and midterm pressure
According to ING's Francesco Pesole: "the greenback still faces downside risks from oscillating AI sentiment" after tech-stock pressure drove Treasury buying. He sees investors unwinding net-long positions as a precaution before Tuesday's midterms, with a Democratic sweep priced near 68% in prediction markets.
Yet yesterday's U.S. data leaned hawkish, ING noted. Third-quarter growth was 3.4%, above consensus, and September core PCE rose 0.3% month-on-month. Markets price a December rate hike, and the FOMC blackout ends today, with Thomas Barkin, Mary Daly and Alberto Musalem due to speak. Pesole does not expect them to add much.
UBS expects a BoE hike next week
Sterling's move looks dollar-led rather than UK-driven, with no UK data catalyst today. The domestic backdrop is supportive, though: UBS analysts expect the Bank of England to start a short rate-hiking cycle next week, with a second hike in the first quarter of 2027.
They add that strongly short GBP positioning leaves scope for further sterling gains. GBP/USD rose 1.22% in October, its strongest monthly performance since July's 1.65% gain.
If current levels hold, the pair would post its highest weekly close since September 11 and record a third consecutive weekly gain. GBP/EUR gained 2.40% in October, its biggest monthly advance in the 2026 data, and reached a high of 1.1995 on Friday, its highest level in the data since January 1.
UBS said a more dovish-than-expected BoE would challenge its preference for sterling.
Source: Investing.com
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