Pound Sterling rebounds as trades pare back BoE dovish bets

• The Pound Sterling rises against its major peers after the UK budget announcement.
• Traders pare back BoE interest-rate cut bets due to upwardly revised inflation forecasts.
• In the US, investors expect the NFP report to show lower labor demand in October.

The Pound Sterling (GBP) outperforms its majority of peers on Thursday as traders have pared back bets that the Bank of England (BoE) will cut interest rates aggressively after the United Kingdom (UK) Labour government announced its first Autumn Forecast Statement on Wednesday. 

The budget presentation from UK Chancellor of the Exchequer Rachel Reeves was filled with the biggest tax increase in almost three decades to repair the hole in public services, which she referred to as “inheritance from Conservatives”.

The major highlight of the UK budget was the collection of taxes worth 40 billion pounds through an increase in employers’ contribution to National Insurance (NI), higher duty on alcohol and tobacco, and a sharp increase in Capital Gains Tax. Reeves allocated higher spending to various areas such as the National Health Service (NHS), affordable housing, funding duty freeze on fuel, and setting up green hydrogen projects.

Meanwhile, the UK’s Office for Business Responsibility (OCR) has upwardly revised inflation forecasts for 2024 to 2.5% from 2.2% projected in March, a revision that also led traders to expect less interest rate cuts by the BoE. The agency also revised inflation forecasts for 2025 significantly higher, to 2.6% from 1.5% previously anticipated.

Going forward, investors will shift focus to the BoE monetary policy meeting, which will be announced on November 7. The BoE is expected to cut interest rates by 25 basis points (bps) 4.75%, according to an October 22-28 Reuters poll.

Meta Title: Daily digest market movers: Pound Sterling gains slightly against US Dollar

• The Pound Sterling edges higher to near 1.3000 against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair gains as the US Dollar drops ahead of a slew of United States (US) economic data to be announced on Thursday and Friday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tests the 104.00 region.
• The US Dollar falls slightly as lower-than-expected US GDP growth in the third quarter offset a surprisingly upbeat ADP Employment data for October. ADP data showed that private payrolls came in significantly higher at 233K against 159K in September. 
• For more cues on the current status of the job market, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for October, which will be published on Friday. The NFP report is expected to show that the economy added 115K workers, lower than 254K jobs created in September. The Unemployment Rate is expected to remain steady at 4.1%.
• Signs of slower job growth would prompt Federal Reserve (Fed) dovish bets, while robust figures would weaken them. According to the CME FedWatch tool, the central bank is expected to cut interest rates by 25 basis points (bps) in both of the policy meetings to be held in November and December.
• In Thursday’s session, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for September, which will be published at 12:30 GMT. The core PCE inflation, which is the Fed’s preferred inflation gauge, is estimated to have grown by 2.6%, down from 2.7% in August.

Technical Analysis: Pound Sterling struggles near 1.3000

The Pound Sterling struggles to break above 1.3000 decisively against the US Dollar. The near-term trend of the GBP/USD pair remains uncertain as it stays below the 50-day Exponential Moving Average (EMA), which trades around 1.3060.

The GBP/USD pair continues to put efforts to hold the lower boundary of a Rising Channel chart formation around 1.2900 on the daily time frame. 

The 14-day Relative Strength Index (RSI) strives to hold above 40.00. A fresh bullish momentum would trigger if it manages to do so.

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 50-day EMA around 1.3060.