UK's fall forecast statement puts pressure on the British pound | 01 November 2024

Events to watch out for today:

14:30 EET. USD - Change in Non-Farm Payrolls

16:00 EET. USD - ISM Manufacturing Index

GBPUSD:

The Pound-Dollar pair remains on the defensive near 1.2895, its lowest since August 16, in the early hours of Asian trading on Friday. The major pair declined after the UK Labour government announced its first fall forecast on Wednesday.

US inflation, as measured by the Personal Consumption Expenditures (PCE) price index, rose slightly faster than expected in September. Data released by the U.S. Bureau of Economic Analysis (BEA) on Thursday showed that core PCE rose 2.1% in September, up from 2.2% in August, in line with the market consensus of 2.1%.

Core PCE, which excludes volatile food and energy prices, jumped 2.7% over the same period, matching August's gain and beating the market estimate of 2.6%. According to the CME FedWatch tool, financial markets expect the Federal Reserve to cut interest rates by 25 basis points (bps) at both its November and December meetings.

Investors will be keeping a close eye on the U.S. Non-Farm Payrolls (NFP) data for October on Friday for fresh impetus. The NFP report is expected to show that the US economy added 113,000 new jobs in October, while the unemployment rate is expected to remain unchanged at 4.1%.

On the UK front, the UK's new Labor government released its first budget on Wednesday, which includes a £40 billion tax hike to plug a hole in the public finances and allow investment in public services.

In addition, the UK's Office for Business Responsibility (OCR) revised upward its 2024 inflation forecast to 2.5% from 2.2% previously expected in March, which also led traders to expect less interest rate cuts by the Bank of England (BoE). This, in turn, may lead to a decline in the Pound Sterling (GBP) exchange rate.

Trading recommendation: Watch the level of 1.2885, when fixing above it consider Buy positions, when rebounding consider Sell positions.

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