The GBP/USD pair opened this week’s session with a cautiously optimistic mood in the markets, despite a sideways movement during European trading. Currently, the pound sterling is trading at $1.2967, up more than 0.3% on the day, reflecting the increased risk appetite among investors.
Sterling stabilizes as budget concerns ease
The pound is benefiting from the improving overall market sentiment, which is supporting the risk-sensitive currency. The anxiety that followed the UK government’s Autumn Budget announcement last week is starting to fade.
giving investors the opportunity to focus on the possibility of an upward revision to inflation expectations from the Office for Budget Responsibility (OBR). This revision could indicate that UK interest rates will remain higher for longer than expected.
All eyes are on the Bank of England (BoE), which is expected to cut interest rates at its meeting on Thursday. However, markets are still hesitant about the bank’s expectations for another rate cut in December, adding to the uncertainty.
US Dollar Declines on Risk-Off Atmosphere
On the other hand, the US dollar has been on the decline since the start of the week.
as the positive market sentiment has reduced demand for the safe-haven currency. In addition, the impact of last Friday’s weak jobs report continues to weigh on the dollar’s performance.
In October, the US added 12,000 new jobs, the lowest in four years, compared to expectations of 113,000. This sharp decline is partly attributed to recent hurricanes and strikes at Boeing.
which have added additional pressure on the US dollar at the moment. Markets continue to follow economic developments, as these factors affect the movement of currency exchange rates.
Pound sterling hovers near 1.3000 amid dollar decline
Despite recording notable gains against the US dollar during Monday’s North American trading, the pound is still hovering near the psychological resistance at 1.3000. The GBP/USD pair is seeking to stabilize above the key support level of 1.2900.
especially as the US dollar weakens ahead of the presidential elections scheduled for Tuesday.
The US Dollar Index (DXY), which measures the performance of the currency against six major currencies, fell to around 103.60, its lowest level in two weeks. The decline came after a poll showed Democratic candidate Kamala Harris with a three-point lead over former President Donald Trump in a state that was traditionally considered a Trump stronghold during the previous elections. At the same time, most national polls indicate a tight race between the two candidates.
A Trump victory is likely to affect riskier currencies.
as he tends to support protectionist policies to boost domestic economic activity.
as he promised to impose a global tariff of 10% on all countries except China, which may face higher tariffs.
In addition to the US elections, investors are awaiting the Federal Reserve’s decision on monetary policy.
which is scheduled to be announced on Thursday. Expectations are for another interest rate cut.
but at a slower pace of 25 basis points, after the bank made a larger-than-usual 50-basis-point cut in September. All eyes will also be on the Bank’s guidance for its December policy meeting.
Elsewhere, the UK’s Chancellor of the Exchequer announced a £40bn new tax package, the biggest since 1993, along with a raft of investment projects to revive public spending. He also noted that the Office for Business Responsibility had raised its inflation forecast for this year to 2.5% from 2.2% in March.
GBP/USD exchange rate forecast ahead of Bank of England policy announcement
All eyes are on the GBP/USD exchange rate, which could see significant volatility as US markets open this afternoon. Markets are still suffering from the volatility that affected them last week.
amid the uncertainty surrounding the US presidential election and the decisions of both the Federal Reserve and the Bank of England, which keeps investors on their toes.
Today, US factory orders data will be released, with a 0.4% contraction in orders expected in September.
which could negatively impact the US dollar. Tomorrow, the UK final PMI is likely to reveal a slowdown in services activity, which could pressure the pound. However, expectations indicate that the US ISM PMI could also show a decline in service sector activity.
which could pose additional challenges to the US dollar.
In the same context, markets are closely monitoring political events in the US, as Tuesday sees the end of the presidential election.
which could lead to volatility in the dollar price as the results of each state are announced.
Daily Brief: Sterling slips ahead of BoE policy announcement
The pound opened the week lower against most major currencies, except the US dollar.
as investors focused on the Bank of England’s monetary policy decision expected on Thursday. Expectations are for a 25bp cut to 4.75%, with seven of the nine members of the Monetary Policy Committee likely to vote in favor.
while two could support keeping rates unchanged at 5%.
External member Catherine Mann is likely to be a supporter of no change in rates. Investors will be paying close attention to Bank of England Governor Andrew Bailey’s press conference after the policy decision for clues on future moves in December.
