On Friday, GBP/USD halted its decline at 1.3220, trading near its lowest levels in four weeks amid continued US dollar strength.

The US Dollar Index (DXY), which measures the performance of the US dollar against a basket of major global currencies, remains near its April 2025 highs. This movement is supported by growing expectations of monetary policy tightening by the Federal Reserve (Fed) through interest rate hikes, as well as persistent geopolitical uncertainty in the Middle East. The release of US consumer inflation data for October, which exceeded forecasts, prompted more hawkish rhetoric from several Fed officials, strengthening market expectations of further monetary tightening. Moreover, market participants have begun pricing in the possibility of a substantial Fed rate hike of 50 basis points (bps) in December. Against this backdrop, the yield on 10-year US Treasury bonds has once again moved above the 5% mark.

Fed official Mary Daly adopted a noticeably more hawkish stance. According to the FXS Speechtracker tool, her rhetoric received a score of 8.3 out of 10, significantly above the historical average of 6.5. This highlights the regulator's serious concerns about the persistence of inflation, despite positive expectations regarding productivity growth driven by technological progress. In particular, addressing artificial intelligence (AI), Daly noted that although the current technology boom and rapid development of the AI sector are not major inflationary factors and have so far had a limited impact on the labor market, the potential inflationary pressure generated by AI and the risk of stronger inflationary trends in the future prevent the Fed from lowering its guard. Daly's emphasis on persistent inflation in the services sector, her willingness to support a rate hike in September, and her inclination toward further monetary tightening confirm the Fed's commitment to reducing inflation as its primary objective, even though future productivity growth could eventually contribute to slower inflation.

The FXS Fed Sentiment Index increased by 1.01 points to 147.55. The indicator remains in hawkish territory, reflecting a stronger bias toward monetary policy tightening, as also demonstrated by recent statements from Fed officials. This trend, combined with the high FXS Speechtracker reading, suggests that markets are likely to continue pricing in factors supporting US dollar strength, as tighter financial conditions are consistent with the Fed's current objectives.

Meanwhile, President Donald Trump stated in a post on the Truth Social platform that the United States does not need to reach an agreement with Iran, emphasizing that the opportunity to do so had long passed. In addition, continued attacks on Saudi Arabia's energy infrastructure and commercial vessels in the Strait of Hormuz are increasing the geopolitical risk premium. This provides further support for the US dollar as a safe-haven asset and puts additional pressure on GBP/USD.

Nevertheless, expectations that the Bank of England will raise interest rates by another 25 basis points at its next meeting on December 17 could provide some support for the British pound.

At the same time, the lack of strong buying demand calls for caution when opening positions in anticipation of a recovery.

From a technical perspective, oscillators are in negative territory, confirming the bears' advantage. The pair is trading below all major moving averages, further reinforcing the negative market sentiment. Therefore, a sustained recovery appears unlikely without a clear supporting catalyst.

The table below shows the percentage change in the US dollar against the listed major currencies over the current week. The US dollar recorded its largest gain against the Swiss franc.