1.3300: British Pound holds on with UK budget in focus before Fed decision

1.3300 in focus as GBP/USD extends losses for a fourth day.
Three-year deadline: UK Chancellor pledges to clear the current budget deficit.
85% odds of a December Fed hike as markets look to Warsh for guidance.

GBP/USD is down 0.02%. Sterling is heading for its fourth consecutive daily decline against the US Dollar, with the pair trading near 1.3300 and showing little change. Investors are assessing the UK’s Autumn Budget while preparing for the Federal Reserve’s policy decision.

GBP/USD under pressure ahead of Fed decision despite UK fiscal pledges

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Presenting the budget, UK finance minister John Healey described it as “built on fiscal discipline which matches immediate action today, with clear direction for the future.” According to Healey, the Office for Budget Responsibility (OBR) said the Middle East war complicates forecasting. He added that the budget “puts us on track to eliminate the current budget deficit and get Britain’s finances into the black within 3 years.”

GBP/USD showed little reaction to the announcement. Escalating Middle East tensions continued to weigh on the pair.

Attention in the US centres on the Federal Reserve’s monetary policy announcement. Money markets assign a nearly 91% probability to Warsh and his colleagues leaving rates unchanged. His press conference will be closely watched for any guidance on the near-term outlook.

According to Prime Terminal, swaps pricing implied 21 basis points of tightening by year-end, equivalent to an 85% probability of a Fed rate increase at the December meeting.

Fed rate probabilities | Source: Prime Terminal

Beyond the Fed decision, US Gross Domestic Product (GDP) data for Q3 and Core PCE, the Fed’s preferred inflation measure, could shape GBP/USD’s direction as the month draws to a close.

1.3390 Resistance Cluster: GBP/USD Technical Price Outlook

Chart Analysis GBP/USD — GBP/USD: daily price chart

At 1.3303 on the daily chart, GBP/USD remains beneath a tight grouping of simple moving averages near 1.3390, keeping the short-term outlook bearish. Having broken below its rising trend structure, the pair most recently tested former trend-line support near 1.3360, which now serves as resistance. Conversely, a descending trend line that had capped prices around 1.3255 now offers nearby support. The Relative Strength Index (14) is around 48, just below its neutral midpoint. This suggests bullish momentum is fading, with further losses possible unless buyers regain the technical barriers above.

The first upside barrier is the broken rising trend line near 1.3360. Beyond that lies the key confluence of the 50-, 100- and 200-day simple moving averages around 1.3390. A daily close above this zone would reduce immediate selling pressure. Higher resistance comes from a descending trend line near 1.3544, followed by an older rising trend line around 1.3606. Initial support sits at the former descending resistance line near 1.3255. A break beneath it would leave scope for a deeper retreat towards earlier lows not displayed by the current indicator set.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling: Key Questions

Pound Sterling: What are its origins and role?

Dating back to 886 AD, the Pound Sterling (GBP) is the world’s oldest currency and serves as the United Kingdom’s official currency. Figures for 2022 place it fourth globally in foreign exchange (FX) trading, with a 12% share of all transactions and average daily turnover of $630 billion. Among its main currency pairs, GBP/USD, known as ‘Cable’, represents 11% of FX trading. GBP/JPY, called the ‘Dragon’ by traders, accounts for 3%, while EUR/GBP makes up 2%. The Bank of England (BoE) issues the Pound Sterling.

Bank of England policy: How does it affect Sterling?

Monetary policy set by the Bank of England is the biggest influence on Sterling’s value. Policy decisions hinge on the BoE’s primary objective of “price stability” – inflation holding steady at around 2%. Interest rate adjustments are its main means of meeting that objective. To curb excessive inflation, the BoE raises rates, increasing borrowing costs for households and businesses. GBP generally benefits because higher rates make the UK a more appealing destination for international investment. By contrast, very low inflation signals slowing economic growth. The BoE will then consider rate cuts to reduce borrowing costs, encouraging businesses to finance projects that generate growth.

Economic indicators: What do they mean for Sterling?

Sterling can respond to economic releases because they indicate the economy’s health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can steer GBP. Economic strength supports Sterling by drawing in foreign investment. It may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic figures, in contrast, are likely to push the Pound Sterling lower.

Trade Balance: Why does it matter for the Pound?

The Trade Balance is another important release for Sterling. Over a specified period, it measures the gap between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports supports its currency, as foreign buyers need it to pay for those goods. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.