The Pound Sterling (GBP) saw a mild recovery on Thursday, gaining against most major currencies except the antipodeans. This uptick follows Wednesday’s sharp sell-off, driven by growing speculation that the Bank of England (BoE) may cut interest rates at its December meeting.
BoE dovish bets accelerate
Expectations for a BoE rate cut strengthened after the UK’s October Consumer Price Index (CPI) data showed inflation cooling in line with forecasts. Money market pricing now assigns an 85% probability of a 25 bps rate cut to 3.75% in December, up from 80% before the data release.
Soft labor market data earlier this month also contributed to the dovish shift. The UK unemployment rate rose to 5% for the three months to September, marking its highest level since early 2021.
Traders now await UK Retail Sales for October and flash PMI readings for November, both due Friday.
On the fiscal side, attention is turning to the Autumn Budget on November 26. Markets expect Chancellor Rachel Reeves to extend the freeze on income tax thresholds. Prime Minister Keir Starmer did not rule out the measure when speaking to reporters on Wednesday, saying the government’s plans would be revealed next week.
Market movers: USD strengthens after hawkish FOMC minutes
GBP/USD trades near a two-week low around 1.3030 as the US Dollar holds firm. Expectations for a December rate cut by the Federal Reserve have faded following the release of the October FOMC meeting minutes.
The US Dollar Index (DXY) is hovering near a five-month high around 100.30.
According to the CME FedWatch tool, the likelihood of a 25 bps Fed cut in December has dropped to 32.8% from 50.1% earlier in the week.
The FOMC minutes revealed that most policymakers opposed further easing in December, warning it could reignite inflationary pressures. Officials stressed that additional cuts could be seen as weakening their commitment to the 2% inflation target.
Investors now turn their focus to the US Nonfarm Payrolls (NFP) report at 13:30 GMT. Economists expect 50K new jobs, up from 22K in August, with the unemployment rate seen steady at 4.3%. Wage growth is projected at 0.3% MoM and 3.7% YoY.
Stronger-than-expected data may dampen expectations for Fed cuts, while weak numbers could revive dovish bets.
Technical outlook: GBP/USD pressured near 1.3030
GBP/USD continues to struggle near 1.3030, with the broader trend remaining bearish. The pair trades below the 200-day EMA (1.3270) and has resumed its downward path after sellers defended the August low near 1.3140.
The 14-day RSI has slipped back below 40, signaling renewed downside momentum.
Key levels to watch:
- Support: April low near 1.2700
- Resistance: October 28 high at 1.3370
