The Pound is still weak, GBP/USD down to $1.2955 in the Asian session Thursday.
This follows the UK’s new budget under the Labour government which introduced £40 billion in tax rises to get public finances back in order and fund public services.
One of the big changes is an increase in National Insurance (NI) contributions which will bring in a lot of revenue for the Treasury.
With the UK budget aimed at closing the fiscal gap, investors are now looking at the economic impact of this fiscal tightening, especially as businesses prepare for the NI rises.
Analysts say the tax hikes will help the UK’s fiscal problems but will hit the Pound as businesses and consumers feel the pinch.
U.S. Employment and GDP Data Show Mixed Signals
In the U.S., third quarter GDP came in below expectations and adds to the economic slowdown worries. But the ADP Employment Change for October was stronger than expected.
This mixed data has the Fed’s rate outlook in focus especially as traders have almost fully priced in a 25bp rate cut for the November meeting according to the CME FedWatch tool.
Despite the softer GDP, the stronger private sector hiring has sparked debate on the Fed’s next move. As markets wait for the Personal Consumption Expenditures (PCE) Price Index data, investors are looking for further signs of economic strength or weakness which will influence the Fed’s rate cut decisions.
All Eyes on U.S. PCE Inflation for Rate Cut Clues
The U.S. PCE data, a key inflation gauge, is out Thursday and is expected to show a small rise. The headline PCE is forecast to rise 0.2% month-over-month for September and the core PCE 0.3%.
If the data is softer than expected it could increase expectations for a bigger rate cut from the Fed which would put pressure on the U.S. Dollar and support the Pound.
With mixed data from both sides of the Atlantic, the market is waiting for PCE data to see how aggressively the Fed will cut rates. A lower than expected inflation number could increase optimism for rate cuts and reduce USD demand.
Technical Outlook: GBP/USD Approaches Key Support
Currently trading around $1.2948, GBP/USD is testing critical support near $1.2935 within a symmetrical triangle pattern. This setup suggests a potential bounce if the pair remains above the trendline support.
The 50-day EMA at $1.2985 presents immediate resistance, challenging further upside momentum. Breaking above this level could pave the way toward resistance at $1.3017 and $1.3055. However, a drop below $1.2935 might expose GBP/USD to further downside, with support around $1.2900 and $1.2865.
Key Insights:
- Fiscal Pressure on GBP: UK’s £40 billion tax increase may weigh on GBP amid economic concerns.
- U.S. Inflation Data Impact: PCE figures could shape Fed rate expectations and influence GBP/USD.
- Technical Support: GBP/USD holds near $1.2935; a breakout may trigger upward or downward movement.
In summary, GBP is vulnerable and direction is dependent on U.S. inflation data and GBP holding above support.
