The GBP/USD pair is off to a slow start this week, lingering below the mid-1.3100 range and lingering near its lowest point since April 14, which it hit last Friday. The current market environment seems to favor bearish traders, suggesting that the established downtrend from the past month and a half may continue.
After Federal Reserve Chairman Jerome Powell took a hawkish stance last week, the US dollar has held steady near three-month highs, significantly impacting GBP/USD. Powell surprised many by dismissing expectations that there would be another 25 basis point rate cut in December. This sentiment has alleviated some concerns about the economic challenges posed by the ongoing US government shutdown, further supporting the dollar.
On the flip side, the British pound is struggling against a backdrop of increasing worries about the UK’s financial situation, especially with the Autumn Budget planned by Chancellor of the Exchequer Rachel Reeves for November 26. Rising speculation about potential interest rate cuts from the Bank of England (BoE) adds to the negative outlook for the GBP/USD pair. Still, it might be prudent to hold off on any significant moves until the BoE’s policy update on Thursday.
Market anticipation currently includes a roughly one-in-three chance of a 25 basis point cut on November 6 and about a 68% likelihood of a cut by the year’s end. This easing is fueled by slower inflation and ongoing fiscal challenges. Moreover, a downturn in wage growth alongside increasing unemployment is reviving expectations of forthcoming rate cuts. These points, along with last week’s drop below the 200-day simple moving average (SMA), strongly indicate that the easiest path for the GBP/USD pair may be downward.
