Insights 
VT 
The Pound Sterling is under pressure, performing poorly against major currencies except for antipodean ones. Reports suggest the UK Chancellor may raise taxes in the Autumn Budget to address a £22bn shortfall, focusing on the top third of earners.
The Bank of England’s monetary policy announcement this week will be closely watched, with the financial community split on potential interest rate changes. Previously, the BoE maintained rates at 4% amidst high inflation but anticipates the rate to peak around that level soon.
The Gbp Usd Pair
The GBP/USD pair falls to near 1.3070, influenced by firm US Dollar trading amid reduced expectations of Federal Reserve rate cuts this year. The US Dollar Index recently reached a three-month high around 100.00, and the probability of the Fed cutting rates in December dropped to 67.3%.
The GBP/USD outlook remains bearish, with trading under key resistance levels like the 200-day Exponential Moving Average. Meanwhile, the imminent US ADP Employment Change data release will offer insights into job market conditions, possibly affecting rate cut expectations.
The ADP report, indicative of the broader employment landscape, can influence consumer spending and economic growth. Traditionally, a high ADP reading is bullish for the US Dollar, often foreshadowing the Bureau of Labor Statistics’ Nonfarm Payrolls.
Given the selling pressure on the Pound, we see the currency struggling as we head into the UK’s Autumn Budget later this month. The government’s need to address a £22 billion fiscal shortfall suggests that tax hikes are on the table, creating significant headwinds for Sterling. This fiscal tightening is a key driver for our bearish outlook on the currency.
Bank Of Englands Policy Meeting
The immediate focus this week is the Bank of England’s policy meeting on Thursday. With UK inflation recently printing at 3.9% for October, the BoE’s previous confidence that price pressures would peak around 4% is being tested. We must prepare for volatility as the market is divided on whether the central bank will hold rates steady at 4% or deliver a surprise cut.
Meanwhile, the US Dollar is gaining strength as expectations for a December Federal Reserve rate cut diminish. The probability of a cut has fallen sharply from over 94% just last week to around 67% now, according to the CME FedWatch tool. This shift in sentiment is providing strong support for the dollar against the pound.
The US ADP employment report on Wednesday is now a critical data point, especially with the Nonfarm Payrolls report unavailable due to the federal shutdown. The forecast for only 24,000 new jobs is a steep drop from the six-figure monthly gains we saw through most of 2024. A stronger-than-expected number would likely further reduce Fed rate cut odds and add more downward pressure on GBP/USD.
From a technical standpoint, the outlook for the GBP/USD pair remains bearish as it trades below its 200-day moving average. The Relative Strength Index (RSI) is below 30, confirming the strong bearish momentum. We will be watching the psychological 1.3000 level closely as the next major support zone for the pair.
