- Pound Sterling strengthens against major peers following the UK budget announcement.
- Traders reduce BoE rate-cut expectations amid upwardly revised inflation forecasts.
- In the US, investors anticipate the NFP report to indicate reduced labor demand in October.
The Pound Sterling (GBP) strengthens against most major currencies on Thursday as traders dial back expectations for aggressive rate cuts by the Bank of England (BoE). This follows the UK Labour government’s Autumn Forecast Statement, presented by Chancellor of the Exchequer Rachel Reeves, which outlined significant tax hikes to address deficits in public services—a move she referred to as an “inheritance from Conservatives.”
Key highlights of the budget include plans to raise 40 billion pounds through increased employer contributions to National Insurance (NI), higher duties on alcohol and tobacco, and a sharp rise in Capital Gains Tax. Additional spending has been allocated to critical sectors such as the National Health Service (NHS), affordable housing, a fuel duty freeze, and green hydrogen projects.
The Office for Budget Responsibility (OBR) has also revised its inflation forecast for 2024, increasing it to 2.5% from the 2.2% projected in March. The forecast for 2025 saw a more substantial upward adjustment to 2.6% from 1.5%, leading traders to expect a more cautious approach to rate cuts by the BoE. Investors now await the BoE’s upcoming policy decision on November 7, with a 25 basis point cut to 4.75% anticipated according to an October Reuters poll.
Market Digest: Pound Sterling Rises as US Dollar Retreats
- The Pound Sterling edged closer to 1.3000 against the US Dollar (USD) in Thursday’s London session as the USD weakened ahead of major US economic releases on Thursday and Friday. The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, tests the 104.00 level.
- The USD faced downward pressure as lower-than-expected US GDP growth in Q3 offset a stronger-than-forecast ADP Employment report for October, which saw private payrolls rise to 233K, up from 159K in September.
- Investors are keenly awaiting the US Nonfarm Payrolls (NFP) report for October, due Friday, with projections of 115K new jobs, down from September’s 254K. The Unemployment Rate is expected to remain steady at 4.1%.
- Signs of slowing job growth could reinforce dovish expectations for the Federal Reserve (Fed), while stronger numbers may weaken these sentiments. The CME FedWatch tool indicates expectations for 25-basis-point rate cuts in the Fed’s November and December policy meetings.
- Thursday’s session also features the US Personal Consumption Expenditure Price Index (PCE) for September, scheduled for release at 12:30 GMT. Core PCE, the Fed’s preferred inflation measure, is anticipated to have grown by 2.6%, down slightly from 2.7% in August.
Technical Analysis: Pound Sterling Tests Resistance Near 1.3000
The Pound Sterling struggles to make a decisive move above 1.3000 against the US Dollar, with the near-term GBP/USD trend remaining uncertain as it trades below the 50-day Exponential Moving Average (EMA) near 1.3060.
The GBP/USD pair is attempting to hold the lower boundary of a Rising Channel formation around 1.2900 on the daily chart.
Should the pair gain bullish momentum, it may face resistance at the 50-day EMA around 1.3060. A move above this level could signal a shift toward further gains.
The 14-day Relative Strength Index (RSI) is working to hold above 40.00, a level that, if maintained, could support a bullish outlook. On the downside, the 200-day EMA near 1.2845 acts as a key support level for GBP bulls.
