- The British Pound rises against its main peers after the announcement of the UK budget.
- Investors reduce BoE rate cut expectations due to upward revision of inflation forecasts.
- In the US, investors expect the NFP report to show lower labor demand in October.
The British Pound (GBP) outperforms most of its peers on Thursday as investors have reduced bets that the Bank of England (BoE) will aggressively cut interest rates after the United Kingdom (UK) Labor government ) will announce its first Fall Forecast Statement on Wednesday.
UK Chancellor of the Exchequer Rachel Reeves’ budget presentation was packed with the biggest tax rise in almost three decades to patch the hole in public services, which she referred to as a “Tory legacy”.
The main highlight of the UK budget was the raising of taxes worth £40 billion through an increase in employers’ contribution to National Insurance (NI), a higher tax on alcohol and tobacco, and a sharp increase in Capital Gains Tax. Reeves allocated increased spending to various areas such as the National Health Service (NHS), affordable housing, a fuel tax freeze and the creation of green hydrogen projects.
Meanwhile, the UK’s Office for Corporate Responsibility (OCR) has revised inflation forecasts for 2024 upwards to 2.5% from the 2.2% projected in March, a revision that also led investors to expect less. rate cuts by the BoE. The agency also revised inflation forecasts for 2025 significantly upward, to 2.6% from the 1.5% previously anticipated.
Looking ahead, investors will focus their attention on the BoE’s monetary policy meeting, which will be announced on November 7. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.75%, according to a Reuters poll from October 22-28.
Meta Title: Daily Market Summary: British Pound Gains Slightly Against US Dollar
- The British Pound rises slightly near 1.3000 against the US Dollar (USD) in the London session on Thursday. The GBP/USD pair gains as the US Dollar falls ahead of a series of United States (US) economic data to be announced on Thursday and Friday. The US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, tests the 104.00 region.
- The US dollar falls slightly as US GDP growth in the third quarter was lower than expected, offsetting surprisingly optimistic ADP employment data for October. ADP data showed private payrolls were significantly higher, at 233,000 versus 159,000 in September.
- For more information on the current state of the labor market, investors will pay close attention to US Nonfarm Payrolls (NFP) data for October, due out on Friday. The NFP report is expected to show the economy added 115,000 workers, down from the 254,000 jobs created in September. The unemployment rate is expected to remain stable at 4.1%.
- Signs of slower job growth would boost dovish bets on the Fed, while robust numbers would weaken them. According to the CME’s FedWatch tool, the central bank is expected to cut interest rates by 25 basis points (bps) at both policy meetings in November and December.
- In Thursday’s session, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for September, which will be released at 12:30 GMT. Core PCE inflation, which is the Fed’s preferred measure of inflation, is estimated to have grown 2.6%, down from 2.7% in August.
Technical Analysis: Pound Sterling Struggles Near 1.3000
The British Pound struggles to break decisively above 1.3000 against the US Dollar. The short-term trend of the GBP/USD pair remains uncertain as it remains below the 50-day EMA, which is trading around 1.3060.
The GBP/USD pair continues to struggle to hold the lower boundary of an ascending channel chart formation around 1.2900 on the daily time frame.
The 14-day Relative Strength Index (RSI) is struggling to stay above 40.00. A new bullish momentum would be triggered if it manages to do so.
Looking down, the 200-day EMA near 1.2845 will be an important support zone for the British Pound bulls. To the upside, Cable will face resistance near the 50-day EMA around 1.3060.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to 2022 data. Its key trading pairs are GBP/ USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
