01 Nov 2024

• The Pound Sterling edges higher against the US Dollar ahead of key US data on the horizon.
• US NFP and the Manufacturing PMIs could influence the Fed interest rate path.
• The BoE is expected to cut interest rates only once in the remaining two meetings this year.
• The Pound Sterling (GBP) appreciated against its primary counterparts on Friday as market participants reevaluated the anticipated number of interest rate reductions that the Bank of England (BoE) is likely to implement for the rest of the year. The BoE is projected to enact a single interest rate cut during one of its two meetings scheduled for November and December. As reported by Reuters, traders estimate an 80% probability that the BoE will reduce its key borrowing rates by 25 basis points (bps) on Thursday, bringing them down to 4.75%.
• Conversely, analysts from the Bank of Montreal (BMO) anticipate that the Bank of England (BoE) will maintain the interest rates at 5% during its upcoming meeting on Thursday, citing several influencing factors. "Taking into account the makeup of the Monetary Policy Committee (MPC) and the impact of the budgetary measures on the BoE's forecasts and the persistence of inflation, we believe that at least five members may likely support a decision to keep the Bank Rate unchanged."
• Speculation regarding potential interest rate reductions by the Bank of England (BoE) has diminished following the announcement by the Chancellor of the Exchequer in the United Kingdom of a tax increase amounting to 40 billion pounds, the most significant since 1993. This announcement also included strategies aimed at widening the fiscal deficit to stimulate public expenditure and enhance investment. Additionally, the Office for Business Responsibility (OBR) has adjusted its inflation projections for 2024 and 2025 to 2.5% and 2.6%, respectively, leading traders to further reduce their expectations for BoE rate cuts.

• Daily digest market movers: Pound Sterling remains broadly weak against US Dollar

  The Pound Sterling has risen slightly to approach 1.2900 against the US Dollar (USD) during Friday's London trading session, following a new 11-week low of approximately 1.2850 recorded on Thursday. The GBP/USD pair remains generally weak as investors turn their attention to the upcoming Nonfarm Payrolls (NFP) data for October, scheduled for release at 12:30 GMT. This official labor market report is anticipated to shape market expectations regarding the Federal Reserve's (Fed) interest rate trajectory for the remainder of the year.

  
  

  The NFP report is projected to indicate an addition of 113,000 jobs to the economy, significantly lower than the 254,000 jobs created in September. Economists predict that the Unemployment Rate will hold steady at 4.1%. There appears to be a divergence in consensus regarding the NFP data when compared to Wednesday's ADP Employment Change report, which revealed that the private sector hired 233,000 new workers in October, suggesting an improvement in labor market conditions.

  
  

  Additionally, Initial Jobless Claims for the week ending October 25 decreased to 216,000, below the anticipated 230,000, marking the lowest level in nearly 22 weeks. Indicators of strengthening labor demand could reduce the likelihood of an economic downturn, allowing the Fed to adopt a more gradual approach to rate cuts. According to the CME FedWatch tool, the central bank is expected to implement a 25 basis point (bps) reduction in interest rates during both the November and December policy meetings.

  
  

  In the North American trading session on Friday, investors will also be attentive to the Average Hourly Earnings and the ISM Manufacturing PMI data for October. Average Hourly Earnings, a crucial indicator of wage growth, is expected to have increased by 4% year-on-year. On a month-to-month basis, wage growth is anticipated to rise by 0.3%, a deceleration from the 0.4% increase observed in September. Regarding the PMI data, the index is forecasted to rise to 47.6 from 47.2 in September, indicating that the US manufacturing sector continues to contract, albeit at a slower rate.

  Technical Analysis: Pound Sterling finds cushion near 200-day EMA

  The Pound Sterling remains vulnerable near the fresh 11-week low of around 1.2850 against the US Dollar, which was posted on Thursday. 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 but has found a cushion near the 200-day EMA around 1.2850.

  The GBP/USD pair also delivers a breakdown of the Rising Channel chart formation on the daily time frame, which results in a bearish reversal.

  The 14-day Relative Strength Index (RSI) slides back into the 20.00-40.00 range, signaling a fresh bearish momentum.

  Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, will face resistance near the 50-day EMA around 1.3060.