The British pound (GBP) dipped against the US dollar (USD) to about 1.3190 during European trading on Tuesday. This decline continued from Monday, as the USD maintained its recovery despite some disappointing US ISM Manufacturing Purchasing Managers Index (PMI) figures for November.
Currently, the US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, was up by 0.1% at approximately 99.50.
Recent US economic reports revealed that factory activity has now contracted for nine consecutive months, and the decline was steeper than anticipated. The manufacturing PMI recorded at 48.2, falling short of the expected 48.6 and down from October’s 48.7.
Beyond the manufacturing PMI, other indicators from the non-service sector, such as new orders and the employment index, also showed significant decreases. This overall weakness in manufacturing suggests a lack of demand, which, in theory, could necessitate further rate cuts from the Federal Reserve.
In light of these factors, many traders are increasingly convinced that the Fed might lower rates once more this year. Having already reduced the federal funds rate by 75 basis points to a range of 3.75-4.00%, there’s now an 87.2% likelihood, according to CME’s FedWatch tool, that a 25 basis point cut will occur at the December meeting.
British Sterling falls as Starmer supports lower interest rates
- The pound saw a slight decline against major currencies on Tuesday as UK Prime Minister Keir Starmer emphasized the necessity of reducing inflation and interest rates to foster business investment and stimulate economic growth.
- Starmer stated, “The most important thing we can do for growth, the most important thing we can do for business, is first to bring down inflation and lower interest rates even further, and with that, the cost of investment for business,” as reported by Reuters.
- His comments followed positive feedback on Chancellor of the Exchequer Rachel Reeves’ recent Autumn Budget, which included a tax increase amounting to £26 billion by 2029-30 to address the fiscal gap.
- Speculation around lower UK interest rates poses risks for the pound.
- Meanwhile, market confidence is rising that the Bank of England will cut rates during its monetary policy meeting this month due to a weakening job market and slowing inflation.
- However, in a somewhat contradictory stance, policymaker Megan Green mentioned that she would only endorse rate cuts if labor market conditions and consumption worsened further.
- Looking ahead, key indicators for the GBP/USD pair will be the upcoming November ADP employment change and ISM Services PMI data due on Wednesday. It’s expected that private employers added only 10,000 new jobs, a significant drop from the 42,000 added in October. The ISM Service PMI is also anticipated to fall to 52.1 from the previous 52.4.
Technical analysis: GBP/USD stabilizes above 20-day EMA
During Tuesday’s trading session, GBP/USD was recorded at 1.3211 on the daily chart. The pair is holding just above the upward-trending 20-day exponential moving average (EMA) of 1.3187, with short-term outlook appearing positive. The average shows an upward movement following a flat phase, suggesting an improving trend.
Following a recent rally, momentum has steadied, with the 14-day Relative Strength Index (RSI) showing a neutral reading at 51.24.
A move above the downtrend line ranging from 1.3726 to 1.3085 has confirmed a shift in bias, as the previous resistance is no longer hindering further growth.
If this trendline break holds, prices are likely to remain supported as buyers maintain higher lows. A slip back to 1.3085 could spark demand, yet closing below that mark would threaten the bullish sentiment and possibly see a deeper retracement towards the psychological threshold of 1.3000.
