Sterling Fails to Sustain Gains; Focus Shifts Back to the Fed

The Pound Sterling (GBP) weakened against the US Dollar (USD) in trading on Thursday (October 22, 2026), as rising geopolitical tensions in the Middle East and stronger-than-expected US labor market data prompted investor caution. The GBP/USD currency pair fell 0.16% to 1.3372, having earlier reached a daily high of 1.3419. Sterling’s decline coincided with growing concerns regarding a potential US-Iran conflict, following a warning from the Iranian Revolutionary Guard Corps (IRGC) Navy of possible attacks on US military bases should Washington send vessels through the Strait of Hormuz. Reports of potential follow-up strikes by the US and Israel against Iran—following the November midterm elections—further fueled uncertainty in global financial markets.

From a fundamental perspective, the US Dollar found support after data on initial jobless claims showed that the number of new unemployment benefit filings fell to 194,000 for the week ending October 17—below the 200,000 forecast. This figure marks a three-month low and approaches levels not seen since 1969, reflecting a persistently low rate of layoffs in the United States. The four-week moving average of claims also declined to 197,750, reinforcing the view that the US labor market remains relatively stable. These conditions sustain expectations for a hawkish monetary policy from the Federal Reserve; while the probability of an interest rate hike in October is estimated at only around 8%, the likelihood of an increase in December stands near 80%.

Meanwhile, the outlook for UK monetary policy has also come into focus, as higher-than-expected inflation data has fueled speculation that the Bank of England (BoE) might raise interest rates at its November 5 meeting. Investors are currently awaiting the UK retail sales report and preliminary S&P Global Purchasing Managers' Index (PMI) data to gain an updated picture of economic activity and price pressures. Furthermore, the UK government's budget announcement—scheduled for October 28 by Chancellor of the Exchequer John Healey—is expected to draw market attention, particularly regarding fiscal discipline and the management of government debt.

Given persistent geopolitical uncertainty and the lack of full clarity regarding the future direction of monetary policy in both nations, the GBP/USD pair is likely to remain volatile leading up to the central bank meetings.

Newsmaker Conclusion

The weakening of the Pound Sterling indicates that the strength of the US Dollar and heightened geopolitical uncertainty continue to limit the upside potential for GBP/USD, even though expectations of interest rate hikes by the Bank of England could provide some support for the British currency.

From a technical perspective, the 1.3350 area serves as the nearest support level to watch. Should the price consistently trade below this level, GBP/USD may test the psychological 1.3300 mark. Conversely, a recovery above 1.3400 could open the door for gains toward the 1.3420–1.3450 range. These levels represent technical scenarios based on current price data rather than guaranteed targets.

Key market focus: The future trajectory of the Pound Sterling will be influenced by developments in the Middle East conflict, the policy direction of the Federal Reserve (October 27–28), the UK budget announcement (October 28), and expectations surrounding the Bank of England’s interest rate decision on November 5.

Source: Newsmaker.id