British Pound Weakens as US Dollar Strengthens Ahead of Key Data

The British Pound (GBP) is weakening against the US Dollar (USD) as the Dollar gains strength ahead of the US ISM Services Purchasing Managers Index release. The GBP/USD pair is trading around 1.3240 during Asian hours on Monday, following modest gains in the previous day. The Dollar's rise is driven by market participants scaling back expectations for a Federal Reserve (Fed) interest rate hike, despite the Fed's recent hawkish stance.

Financial markets now price in a 77.9% probability that the Fed will leave benchmark rates unchanged at its October policy meeting, up from 74% before the jobs report. This shift comes after a surprisingly weak US labor market performance, with Nonfarm Payrolls increasing by just 29,000 in September, far below the forecasted 90,000. The unemployment rate also ticked up to 4.2%, while the labor force participation rate slightly expanded to 61.8%.

In the UK, investors expect roughly 30 basis points of rate hikes by the Bank of England (BoE) through the end of the year, with a cumulative 90 basis points of tightening through 2027. BoE policymakers, including Governor Andrew Bailey, have shown a willingness to raise interest rates to combat inflation risks driven by high energy prices. Analysts at MUFG note an improved UK growth outlook, upgrading their Q3 growth forecast to 0.4% from 0.1%, suggesting resilient domestic activity could support the Pound.

Technically, GBP/USD is trading around 1.3240, maintaining a bearish tone as it holds below key moving averages. The 14-day Relative Strength Index (RSI) near 35 indicates lingering downside pressure. Immediate resistance is at 1.3259, with a more significant barrier at 1.3399. Without clear technical support, further declines could be expected unless the pair closes above 1.3259, signaling easing selling pressure.