British Pound Recovers Partially Against Dollar Amid Fed Rate Hike Uncertainty
The British Pound (GBP) has partially recovered from its earlier losses against the US Dollar (USD) but remains down 0.15% near 1.3220 during Monday's European trading session. The GBP/USD pair saw a slight rebound as the US Dollar Index eased after reaching a fresh annual high near 102.53. Reduced expectations of a hawkish Federal Reserve (Fed) are likely limiting the USD's upward momentum.
According to the CME FedWatch tool, the probability of a Fed interest rate hike later this month has dropped to 19.4% from 70.9% a week ago. Traders have scaled back their hawkish Fed expectations following the release of the US Nonfarm Payrolls (NFP) data for September, which showed moderate job growth. However, market experts suggest this negative reaction to hawkish Fed prospects may be short-term, as high inflation remains a key challenge for the US central bank.
Kenneth Broux of Societe Generale notes that the softer US payrolls report has reduced expectations for near-term Fed tightening, but stresses that it is not a significant change for the Fed's hawkish stance. Inflation remains the central focus for policymakers. During the day, investors will watch the US ISM Services Purchasing Managers’ Index (PMI) for September, expected to fall slightly to 55.0 from 55.4 in August.
On the Pound Sterling front, the UK budget announcement later this month will be a major trigger. Rabobank strategists highlight that Prime Minister Burnham and Chancellor Healey have reassured that former Chancellor Reeves’ fiscal rules will be followed. Rabobank views this as likely leading to tax increases, which they judge as neither beneficial for growth nor for voter reactions.
In technical analysis, GBP/USD trades at 1.3225, maintaining a bearish near-term tone as it holds below the 20-day exponential moving average (EMA) at 1.3326. The Relative Strength Index (14) at 34.9 suggests lingering downside pressure. Immediate resistance is located at the 20-day EMA, which bulls need to reclaim to ease bearish pressure and open the way for a more sustained recovery.