The British Pound Outlook

The British pound (GBP) has begun the week on a cautious note against other currencies. It’s likely to experience some volatility, especially with the Bank of England’s (BoE) interest rate policy announcement coming up on Thursday.

Traders suggest there’s about a one-in-three chance the BoE could lower interest rates by 25 basis points to 3.75%. This dovish sentiment has been gaining momentum, particularly after the UK’s September Consumer Price Index (CPI) showed weaker-than-expected growth, alongside signs of weakening labor demand in the employment data for the three months ending in August.

At its September meeting, the BoE noted that inflation is anticipated to peak at roughly 4% this month.

Analysts are split on what the central bank will decide this Thursday. Goldman Sachs predicts the BoE will reduce rates by 25 basis points to 3.75%, whereas ING believes the rates will stay as they are, suggesting a close vote of 5-4.

Market Update

• The British pound has stabilized against the US dollar around 1.3140, recovering from a recent low of 1.3100 hit last Friday. The dollar remains strong amid tempered dovish expectations for the Federal Reserve’s upcoming policy meeting.
• Currently, the U.S. Dollar Index (DXY) is trading around 99.85, almost hitting a three-month peak from Friday.
• The odds of the Fed cutting rates by 25 basis points at its December meeting have decreased significantly, dropping from 94.4% to 69.3% in just a week.
• The tone shifted after Fed Chairman Jerome Powell stated that a December rate cut isn’t imminent, and expressed that opinions varied among officials during their last meeting.
• Policy-makers are particularly wary about inflation risks, as price pressures are still elevated beyond the central bank’s target of 2%.
• “We must keep certain limits to manage inflation,” Cleveland Fed President Beth Hammack remarked at a recent conference.
• Investors will be looking ahead to the October US ISM Manufacturing Purchasing Managers Index (PMI) data, set to be released at 15:00 GMT. Expectations hover around a slight increase to 49.2 from September’s 49.1, although anything below 50 indicates a decline in manufacturing activity.

Technical Analysis of the GBP

The British pound’s recent downturn has left it struggling against the US dollar, with temporary support observed around a six-month low at 1.3100. The prognosis appears bearish as the price is trading below the 200-day exponential moving average (EMA), now around 1.3290.

The 14-day Relative Strength Index (RSI) is nearing 30.00, a sign suggesting a bearish trend overall.

Looking ahead, the psychological level of 1.3000 stands out as a crucial support point. On the flip side, the high from October 28, around 1.3370, could be a tough nut to crack if things turn bullish.

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