The Pound Sterling is facing challenges and is struggling against major currencies, with the exception of those from Australia and New Zealand. Reports indicate that the UK Chancellor plans to raise taxes in the Autumn Budget due to a £22 billion shortfall, particularly targeting high earners. This week, the Bank of England (BoE) will announce its monetary policy, and there is a lot of anticipation. The financial community is divided over possible interest rate changes. Recently, the BoE kept rates at 4% despite high inflation but expects rates to reach their peak soon.

The GBP/USD Pair

The GBP/USD pair has dropped to around 1.3070 due to strong US Dollar trading. This decline follows lower expectations for Federal Reserve rate cuts this year. The US Dollar Index recently hit a three-month high of about 100.00, with the chances of a Fed rate cut in December now falling to 67.3%. The outlook for the GBP/USD pair is negative, trading below important resistance levels, including the 200-day Exponential Moving Average. The upcoming US ADP Employment Change data will provide crucial insights into the job market, which could influence rate cut expectations. The ADP report reflects the broader employment situation and can impact consumer spending and economic growth. A high ADP number usually supports the US Dollar and may predict the upcoming Nonfarm Payrolls report from the Bureau of Labor Statistics. With the Pound under pressure, it seems to be struggling as we approach the UK’s Autumn Budget later this month. The government’s need to cover a £22 billion budget gap suggests tax increases may happen, creating significant challenges for the Pound. This fiscal tightening is a significant reason for our negative outlook on the currency.

Bank of England’s Policy Meeting

This week, all eyes are on the Bank of England’s policy meeting on Thursday. UK inflation recently stood at 3.9% for October, putting the BoE’s earlier confidence about price pressures peaking at 4% to the test. We may experience volatility as the market is uncertain whether the central bank will maintain rates at 4% or unexpectedly lower them. Meanwhile, the US Dollar is gaining strength as expectations for a December Federal Reserve rate cut lose momentum. The chances of a cut have sharply dropped from over 94% last week to about 67%, according to the CME FedWatch tool. This change in outlook is bolstering the dollar against the Pound. The US ADP employment report on Wednesday is crucial, especially since the Nonfarm Payrolls report is not available due to the federal shutdown. The forecast for just 24,000 new jobs is a significant fall from the six-figure gains seen for most of 2024. If the number exceeds expectations, it could further lessen Fed rate cut odds and increase downward pressure on GBP/USD. Technically, the outlook for the GBP/USD pair remains negative as it trades below the 200-day moving average. The Relative Strength Index (RSI) is below 30, confirming strong bearish momentum. We will closely monitor the critical 1.3000 level as the next significant support zone for the pair. Create your live VT Markets account and start trading now.

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