Pound Sterling remains weak on vulnerable demand outlook

• Pound Sterling faces a sell-off as UK business activity contracts and labor hiring freezes.
• UK employers shed jobs for the third time in a row as new orders drop.
• Investors see the BoE keeping interest rates unchanged as the UK economy is exposed to a mild recession.

The Pound Sterling (GBP) looks set for a breakdown as expectations of a mild recession in the United Kingdom economy have escalated. The GBP/USD pair falls back as higher borrowing costs by the Bank of England (BoE), a poor demand outlook, and deepening geopolitical tensions weigh.

The UK’s labor market appears to be facing the consequences of slowing business activity, with employers shedding jobs for the third time in a row. Going forward, investors will focus on the interest rate decision by the BoE, which will be announced next week. The BoE is expected to keep interest rates unchanged at 5.25% for the second consecutive time, and policymakers are expected to downgrade the growth outlook.

Daily Digest Market Movers: Pound Sterling remains weak amid US Dollar strength

• Pound Sterling finds interim support near 1.2160 after a sharp correction from an eight-day high around 1.2290.
• More downside in the Pound Sterling seems warranted as the UK economy is expected to fall into a mild recession due to declining business activity in a deteriorating demand environment.
• S&P Global reported on Tuesday that the Manufacturing PMI was at 45.2, better than expectations of 45.0 and the former reading of 44.3. However, a figure below the 50.0 threshold signals a  contraction in factory activity. UK manufacturing activity has been contracting for more than a year, according to the PMI data.
• This is the longest period of decline in the country’s factory activity since 2008-2009 as firms are cutting on inventory due to a slowdown in new orders. 
• UK firms have frozen hiring amid lower levels of new business. S&P Global reported that employers remained worried about the UK economic outlook and constraints on spending due to higher borrowing costs.
• The Services PMI came in at 49.2 in October, below the expected 49.5, and September's release of 49.3. The Services PMI, which gauges activity among service providers, contracted for the third month in a row.
• The effect of the hiring freeze by UK employers is clearly visible in the labor market data reported by the UK Office for National Statistics (ONS) on Tuesday.
• The ONS reported that employment levels fell for the third time in a row. Employers shed 82K jobs in the June-August period, a number that is significantly lower than expectations of 198K lay-offs. In the three months to July period, employment levels were reduced by 207K employees. 
• The UK’s Unemployment Rate dropped to 4.2% in the quarter to August against expectations and the former reading of 4.3%.
• Economic data released in October suggest that the UK economy is struggling with high-interest rates from the Bank of England (BoE). 
• A slowdown in business activity, labor demand, and weak consumer spending will likely prompt the BoE to keep interest rates unchanged at 5.25% in its monetary policy meeting scheduled for November 2.
• The risk appetite of the market participants remained weak as Israeli troops were preparing to enter Gaza for the ground assault.
• Meanwhile, the US Dollar recovered on Tuesday after finding support near 105.40. Investors rushed for the US Dollar after upbeat PMI reading for October.
• This week, investors will watch for the Q3 Gross Domestic Product (GDP) data, which will be published on Thursday. Economists anticipate the growth rate doubling to 4.2% against the former reading of 2.1% on an annualized basis.
• A strong growth rate in the July-September could elevate chances of further policy-tightening by the Federal Reserve (Fed) in its monetary policy meeting scheduled for November 1.

Technical Analysis: Pound Sterling falls after short-lived pullback to near 1.2300

Pound Sterling faced an intense sell-off after a short-lived pullback to near the round-level resistance of 1.2300. The GBP/USD pair failed to sustain above the 20-day Exponential Moving Average (EMA), which indicates that the short-term trend is bearish. The broader Cable outlook is extremely bearish as the 50-day and 200-day EMAs are downward-sloping. Further downside in the GBP/USD pair could drag it towards the psychological support of 1.2000.