Pound Sterling stays on edge due to expectations of a dovish BoE

The British pound (GBP) showed mixed results against other major currencies on Tuesday, as traders seemed more optimistic that the Bank of England (BoE) might lower interest rates by 25 basis points (bps) to 3.75% at its upcoming monetary policy meeting next week.

This anticipation stems from signs of weakening in the UK labor market and a slowdown in inflation. Research conducted by KPMG and the Jobs Federation indicated on Monday that permanent job placements were still weak in the previous month, particularly ahead of Finance Minister Rachel Reeves’ Budget announcement on November 26, amid worries about potential tax increases.

On Monday, Alan Taylor, an external member of the Bank of England, mentioned that inflation might head back towards the 2% target in the near future, given the recent decline in wage and service-related inflation. Taylor remarked, “We’re still applying some brakes, but we believe we can reach our inflation objective reasonably soon.”

Market watchers will be attentive to a speech by central bank governor Andrew Bailey scheduled for Wednesday, hoping it might provide further insights into the UK’s interest rate future. Additionally, October’s gross domestic product (GDP) data, due out on Friday, is also on investors’ radar.

A daily digest that moves the market: Investors await US JOLTS jobs and Fed policy

• The British pound was trading in a narrow band above 1.3300 against the US dollar (USD) during European hours on Tuesday. GBP/USD remained stable as market participants awaited Wednesday’s Federal Reserve monetary policy announcement.
• At that moment, the US Dollar Index (DXY) was holding steady around 99.00, reflecting its value against six major currencies.
• The Federal Reserve is widely expected to cut interest rates by 25 basis points to a range between 3.50% and 3.75% due to weakening labor demand in the U.S. If the Fed proceeds with easing, essential aspects to monitor will include the Fed’s monetary policy statement, the dot plot, and Jerome Powell’s subsequent press conference for indications on future rate changes.
• Finding a balance will be crucial for the Fed, as inflation pressures are significantly above the 2% target while the job market continues to cool, partly influenced by the expanding role of artificial intelligence (AI) across various sectors.
• Investors will also dive into the Fed’s economic forecast report for insights on where policymakers anticipate the federal funds rate heading in the medium to long term, along with updated projections for inflation, growth, and unemployment.
• During Tuesday’s session, attention will be on the October JOLTS job data, slated for release at 3 PM Japan time, with expectations that U.S. employers added around 7.2 million jobs during that period.

Technical analysis: GBP remains above Fibo retracement of 38.2%

The British pound was fluctuating within a tight range above 1.3300 against the US dollar on Tuesday, staying above the rising 20-day exponential moving average (EMA) of 1.3244, which suggests a positive near-term outlook. The 20-day EMA has been on the rise lately, and the dips have been minimal.

With the 14-day Relative Strength Index (RSI) around 61, it shows bullish momentum and points to a potential short-term uptrend, as it remains fairly distant from overbought territory.

As long as prices stay above the upward-trending 20-day EMA, momentum appears to be favorable. A daily close exceeding the 50% Fibonacci retracement at 1.3402 could reinforce the bullish trend and open the door to the October 17 high of 1.3471. On the other hand, if this resistance isn’t surpassed, a pullback could head toward the 38.2% Fibonacci level at around 1.3305, but the pair is likely to remain steady.