Sterling hits seven-week high as euro also gains against dollar

Election results weigh on the dollar

The pound was last up 0.45% against the dollar at $1.3475, while the euro rose 0.34% to $1.1229. Sterling also gained against the euro: EUR/GBP declined 0.10% to £0.8336.

Democratic victories gave the party control of both chambers of Congress, leading investors to reassess the outlook for US fiscal policy and additional government spending. The resulting dollar weakness helped both European currencies, though political uncertainty and the approaching US employment report on Friday kept traders cautious.

Bank of England outlook tempers sterling's gains

Sterling pulled back from its session high ahead of Thursday's monetary policy announcement. Markets widely expect the Bank of England to lift its benchmark rate by 25 basis points in response to persistent inflation, driven partly by higher energy costs.

Beyond that decision, investors are looking for guidance on possible further increases in 2027. Some analysts caution that sterling's valuation may already account for expectations of aggressive tightening.

Higher inflation and slower growth in the eurozone

October's annual eurozone inflation rate reached 4%, up from 3.8% in September and the highest reading in three years. That increase reinforced expectations for another European Central Bank rate hike, even as economic activity showed signs of losing momentum.

The composite purchasing managers' index dropped from 53.1 to 51.7 in October. The reading pointed to continued expansion, but at the slowest pace in four months.

Levels to watch

For EUR/USD, resistance is around $1.1273 and support near $1.1190. GBP/USD could make another attempt at $1.3503, with support around $1.3407.

Whether the gains continue will depend in part on Thursday's Bank of England announcement and the US employment figures due Friday.