The British Pound Sterling has fallen for a third consecutive day against the U.S. Dollar, reaching a 10-day low. The decline to approximately 1.3365 is driven by a resurgent Dollar and growing concerns over the United Kingdom's fiscal health.
Market participants are now closely watching for a speech by Federal Reserve Chair Jerome Powell, which could provide new insights into U.S. monetary policy, especially concerning the ongoing government shutdown.
Key Takeaways
- The Pound Sterling (GBP/USD) dropped to a 10-day low near 1.3365 as the U.S. Dollar regained strength.
- Minutes from the Federal Reserve's September meeting indicated a willingness to cut interest rates further in 2025 due to labor market risks.
- The UK government has restricted the use of emergency funds for public sector pay raises, signaling a focus on fiscal discipline ahead of the Autumn Budget.
- Investors are awaiting Federal Reserve Chair Jerome Powell's speech for guidance on the economic outlook and the impact of the U.S. government shutdown.
US Dollar Rebounds on Fed Rate Cut Expectations
The U.S. Dollar Index (DXY), which measures the currency against a basket of six others, recovered to near its two-month high of 99.00 on Thursday. This bounce followed a brief dip to 98.70, showing underlying strength in the greenback.
The dollar's recent momentum was momentarily paused following the release of the Federal Open Market Committee (FOMC) minutes from its September meeting. The documents revealed that officials are growing more comfortable with the idea of further interest rate reductions for the remainder of 2025.
Fed Signals Easing Policy Amid Labor Concerns
According to the FOMC minutes, policymakers noted that risks to inflation have diminished. Their primary concern has shifted towards the labor market, where they see emerging risks. The committee judged it would likely be "appropriate to ease policy further over the remainder of 2025."
This sentiment is reflected in market pricing. The CME FedWatch Tool indicates a 78.6% probability that the Federal Reserve will implement two more 25-basis-point rate cuts before the end of the year.
Focus Shifts to Powell's Speech
Investors are now looking for more definitive cues from Fed Chair Jerome Powell. His speech at the Community Bank Conference in Washington, scheduled for 12:30 GMT, is a key event. Market participants are particularly interested in his assessment of the economic impact of the current U.S. government shutdown and how it might influence future monetary policy decisions.
UK Fiscal Pressures Weigh on the Pound
The Pound Sterling is underperforming against its peers not just due to dollar strength, but also because of renewed domestic concerns. Investors are becoming increasingly cautious about the UK's economic outlook, particularly its fiscal stability, with the Autumn Budget announcement expected in late November.
On Wednesday, the UK government signaled a tight grip on public spending. James Murray, the Chief Secretary to the Treasury, confirmed that government departments would be barred from using emergency reserve funds to finance public sector pay raises.
"This prudent but tough approach to public spending is what will help build a stable economy," Murray stated in a letter released by the finance ministry.
This move is seen as an effort by the government to adhere to its own fiscal rules established in the 2024 budget and prevent a wage-price spiral.
UK Debt Concerns
Concerns over the UK's public debt levels have been mounting. In July, Chancellor Rachel Reeves announced an increase in welfare spending, which amplified worries about the nation's borrowing. Analysts now anticipate that the upcoming budget may include spending cuts, tax increases, or a combination of both to manage the ballooning fiscal deficit.
Diverging Central Bank Outlooks
The monetary policy outlooks for the Bank of England (BoE) and the U.S. Federal Reserve are creating a complex picture for the GBP/USD currency pair.
Bank of England's Policy Dilemma
While the Fed is signaling more rate cuts, the path for the Bank of England is less clear. Investors are divided on whether the BoE will cut rates again this year. The central bank faces a difficult balancing act between a cooling labor market and persistent, sticky inflation.
BoE Chief Economist Huw Pill recently emphasized the need for caution. In a speech at the University of Birmingham, he said that monetary policy must be structured to ensure inflationary pressures do not become uncontrolled.
The next significant data point for the Pound will be the UK employment figures for the three months ending in August, set for release next Tuesday.
GBP/USD Technical Outlook
The Pound Sterling's recent decline has pushed it to its lowest level in 10 days, trading near 1.3365 against the U.S. Dollar. The short-term trend for the GBP/USD pair is considered bearish.
Key technical indicators support this view:
- The pair is trading below its 20-day Exponential Moving Average (EMA), which is currently around 1.3458. This level often acts as a short-term resistance.
- The 14-day Relative Strength Index (RSI), a momentum indicator, has moved down to near the 40.00 level. A sustained break below this point could signal the start of a fresh wave of selling pressure.
Looking ahead, a key support level for the pair is the low of 1.3140 recorded on August 1. On the upside, significant resistance is located at the September 17 high of 1.3726.
