This morning’s release of revealed that inflation was stronger than expected at 3.6% but still fell from 3.8% recorded the month before. Food inflation was particularly strong, which may keep the hawks at the Bank of England’s MPC vocal at their December meeting.
In truth, CPI was never going to be super important for the , given that all the focus is on next week’s key UK budget. Meanwhile, from the US, September’s delayed will be released on Thursday before the focus turns to global PMIs on Friday. Ahead of those, the and earnings are due later on today.
It remains to be seen how much these two factors will influence the FX markets, especially the FOMC minutes, given that we have heard hawkish Fed commentary since the Fed’s last meeting. Anyway, the GBP/USD remains finely balanced ahead of these events.
It is all about the UK budget for the Pound
There’s now only a week to go until the UK’s Autumn Budget, and a lot of the focus will be on the Chancellor Rachael Reeves and her ability to maintain fiscal discipline. Markets are jittery, as has been evidenced in the bond markets, where UK yields have risen noticeably and the GBP/USD exchange rate has weakened.
But it is not clear whether the recent rise in gilt yields was driven by UK-specific news or a general rise in global yields, most notably in Japan. Perhaps a combination of both. UK yields jumped, apparently after reports that the UK government was scrapping plans to raise income tax. This has cast doubt over how a £30 billion fiscal hole will be plugged. Reeves will have a lot of convincing to do next Wednesday, or we could see a drop in UK assets.
US Dollar extends rebound amid risk-off tone
The risk-off environment at the start of this week is prompting a return of safe-haven demand for the US Dollar, with the DXY rising for the fourth consecutive day. Also supporting the US dollar is a modest hawkish repricing of , driven by recent Fedspeak, which has set a cautious tone ahead of key data releases. Pricing for a December Fed cut has now 11 basis points, bringing the implied probability of a cut to around 50%.
Attention for the US dollar traders will now turn to September’s payrolls report, which will be released on Thursday. This is expected to come in just below the 60K mark, with the unemployment rate seen unchanged at 4.3%.
UK and US PMIs should only be a distraction
Global PMIs will be released on Friday, November 21, with both UK and US figures to provide some noise for the GBP/USD. UK manufacturing PMI is expected to remain just below the 50.0 level and services just above it at 52.00, similar levels to the previous months. In the US, too, the PMIs are expected to largely remain unchanged at 52.0 for manufacturing and 54.6 for services.
But as mentioned, with the UK budget taking place on November 26, now less than a week away, investors will be paying less and less attention to UK data. Reports that the Chancellor is scrapping plans for income tax hikes are keeping pressure on the GBP/USD forecast, as it leaves question marks over how the £30bn fiscal hole will be filled.
Technical levels to watch
The area between 1.3100 to 1.3140 is pivotal, where the cable had previously formed a double bottom earlier this year, before that support area gave way in early November. Since then, the GBP/USD has oscillated around this zone, unable to make a decisive move away from it. The bulls will want to hold their ground above this area if they want to reassert control.
So far, it doesn’t look like they are doing a great job at that, but if successful, then 1.3200, followed by 1.325,0 will be in focus next. A decisive break below the 1.31000-1.3140 area would be a bearish outcome; in this scenario, 1.3050 and then 1.3000 could be the next stops.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.