The British pound (GBP) has seen a continued decline against the US dollar (USD) for the third consecutive day, dropping to about 1.3365 on Thursday. This comes as the US dollar index (DXY) rebounded after a previous dip.
During European trading hours, the DXY, which measures the dollar against six major currencies, first corrected to about 98.70 but then surged to a two-month high of around 99.00.
For the past three weeks, the dollar has been experiencing selling pressure following the release of the Federal Open Market Committee (FOMC) minutes from September. These minutes reflected officials’ confidence in potentially reducing interest rates due to increased risks in the labor market. Regarding inflation, officials expressed some relief, noting that upward pressures on prices had either stabilized or not intensified.
The minutes suggested that it might be “appropriate to further ease policy through the remainder of 2025.” According to data from CME’s FedWatch tool, analysts are estimating a 78.6% likelihood that the Fed will lower interest rates by 25 basis points in both of its remaining meetings this year.
Investors are also looking forward to Fed Chairman Jerome Powell’s speech at the Community Banking Conference in Washington, set for 12:30 PM Japan time, seeking insights into how the ongoing U.S. government shutdown might affect economic prospects and monetary policy.
Market-moving daily digest: BoE’s Pill expresses concerns about UK inflation outlook
- On Thursday, the pound struggled against other major currencies as investors grew cautious regarding the UK’s economic outlook ahead of the autumn budget announcement later in November.
- Chancellor of the Exchequer James Murray mentioned that the government would not permit agencies to utilize emergency funds for salary increases, with hopes of preventing a wage inflation spiral. He emphasized that this strict approach to public spending will contribute to economic stability, as he stated in a letter released by the Treasury, per Reuters.
- This situation reflects the UK government’s strong focus on controlling spending to adhere to its fiscal rules laid out in the 2024 Budget. Market participants anticipate possible cuts to public spending, increased taxes, or a mix of both to manage rapid fiscal borrowing. Concerns have escalated regarding the UK’s financial deficit after an announcement in July regarding higher welfare spending.
- On the monetary policy front, there remains uncertainty about whether the Bank of England (BoE) will lower interest rates again in one of its upcoming meetings. This lack of clarity primarily stems from waning employment demand and ongoing inflationary pressures.
- In a recent speech at the University of Birmingham, BoE chief economist Hugh Pill conveyed that monetary policy decisions should aim to curb any potential inflation escalation.
- The next significant event for the pound will be Tuesday’s job report covering the three months leading up to August.
Technical analysis: GBP remains below the 20-day EMA
As of Thursday, the British pound was trading at around 1.3365 against the US dollar, marking its lowest point in ten days. The current trend for the GBP/USD pair appears to be bearish as it is trading below the 20-day exponential moving average (EMA) at approximately 1.3458.
The 14-day Relative Strength Index (RSI) has dipped to around 40.00. A further drop below this threshold might initiate additional bearish momentum.
On the downside, the low from August 1st at 1.3140 will act as a critical support level, while on the upside, the high from September 17th at 1.3726 will serve as a significant resistance point.
