Pound Sterling in tight range with UK budget in focus

• The Pound Sterling trades in a tight range near 1.2950 against the US Dollar ahead of a string of US economic data.
• Investors will pay close attention to US NFP for October and Q3 GDP.
• The UK budget and market speculation for the BoE interest rate path will influence the Pound Sterling.

The Pound Sterling (GBP) consolidates in a tight range near 1.2950 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair trades sideways, with investors focusing on a slew of United States (US) economic data this week and the United Kingdom (UK) Autumn Forecast Statement, which will be announced on Wednesday.

The US Dollar Index (USD), which gauges Greenback’s value against six major currencies, revisits an almost three-month high at around 104.60 on Monday.

Investors will pay close attention to the US preliminary Q3 Gross Domestic Product (GDP) and the Nonfarm Payrolls (NFP) data for October, which will exhibit the current status of economic growth and labor demand, respectively. The economic data will significantly influence market speculation regarding the Federal Reserve (Fed) interest rate outlook for the remaining year.

The Fed started its policy-easing cycle with a larger-than-usual interest rate cut of 50 basis points (bps) in September as officials were worried about growing economic risks, with confidence over inflationary pressures remaining on track to the bank’s target of 2%.

For the remainder of the year, traders see the central bank reducing interest rates by 25 basis points (bps in November and December, according to the CME FedWatch tool.

Meanwhile, the uncertainty over the US presidential election will continue to support the US Dollar. In meetings at the week-long International Monetary Fund (IMF) event last week, financial experts vividly discussed the outcome of the US elections and possible consequences. As former President Donald Trump has vowed to raise tariffs on all nations, central bankers are worried that it could ramp up costs associated with global supply chain mechanism if he wins against current Vice President Kamala Harris.

Daily digest market movers: Pound Sterling could face pressure by BoE dovish bets

• The Pound Sterling exhibits a slight outperformance against its major peers on Monday ahead of the Labor’s first budget. The budget is less likely to offer higher spending by the administration as high inflation is still a major issue for the government. The Chancellor of the Exchequer will also respect commitments made in their election manifesto.
• According to Sky News, the government will honor its commitments and will not raise income tax and national insurance but is expected to hike employers’ national insurance by up to 2 percentage points. The Labor Party is expected to offer a large boost to housing affordability.
• Meanwhile, growing speculation for the Bank of England (BoE) to cut interest rates in all two remaining meetings of the year could dampen the Pound Sterling’s appeal. Market expectations for BoE to cut interest rates by 25 bps in November and December have been prompted by BoE Governor Andrew Bailey’s dovish commentary in discussions at the sidelines of the IMF meeting last week. 
• “Disinflation is happening, I think, faster than we expected it to, but we have still genuine question marks about whether there have been some structural changes in the economy,” Bailey said.

Technical Analysis: Pound Sterling consolidates above 1.2900

The Pound Sterling stays in tight range above the round-level support of 1.2900 against the US Dollar (USD) in European trading hours on Monday. The GBP/USD pair remains at make or a break near the lower boundary of a Rising Channel chart formation around 1.2900 on the daily timeframe. 

A bear cross, represented by the 20- and 50-day Exponential Moving Averages (EMAs) near 1.3080, suggests more weakness ahead.

The 14-day Relative Strength Index (RSI) remains in the 20.00-40.00 range, indicating an active bearish momentum.

Looking down, the 200-day EMA near 1.2845 will be a major support zone for Pound Sterling bulls. On the upside, the Cable will face resistance near the round-level resistance of 1.3100.