Pound Sterling declines on robust US private hiring, UK budget in focus

• The Pound Sterling falls sharply against the US Dollar after robust US ADP Employment data.
• Ahead of the UK budget announcement, the Labour administration is expected to raise taxes and boost spending.
• Investors expect the BoE to cut interest rates by 25 bps on November 7.

The Pound Sterling (GBP) slides below 1.3000 against the US Dollar (USD) in Wednesday’s New York session after the release of the United States (US) macroeconomic data. The GBP/USD pair faces sharp selling pressure as the US Dollar recovers sharply after the US ADP Employment Change for October came in surprisingly higher-than-expected. US private employers added 233K workers, much higher than 159K in September, upwardly revised from 143K. Economists expected a slower private labor growth at 115K.

The scenario of robust private hiring will diminish fears of a deteriorating job market, which would weaken Federal Reserve (Fed) dovish bets for the remainder of the year. According to the CME FedWatch tool, the central bank is expected to cut interest rates further by 25 bps in both policy meetings in November and December.

For more updates on the current labor market status, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for October, which will be published on Friday.

Meanwhile, the US Bureau of Economic Analysis (BEA) has reported that the US economy expanded by 2.8% in the third quarter of the year, slower than estimates and the former reading of 3.0%.

Daily digest market movers: Pound Sterling weakens against its major peers

• The Pound Sterling performs weakly against its major peers on Wednesday ahead of the announcement of the United Kingdom’s (UK) Autumn Forecast Statement at 12:45 GMT. This will be Labour’s first budget presentation in over 15 years, in which Chancellor of the Exchequer Rachel Reeves is expected to announce a tax hike on various income-generating sources and provide higher spending plans to boost investment.
• According to the UBS, the Budget will focus on three key aspects: First, changes in fiscal rules to increase headroom for future borrowing; second, a package of tax increases, probably on capital gains, inheritance, pensions, and – most importantly in terms of additional revenues – national insurance contributions for employers; third, additional spending on investment projects, Reuters reported.
• Market participants will mainly focus on the quantum of tax raises and spending budgets to forecast their impact on inflationary pressures. Analysts at UBS expect that higher spending will likely lead to an upward revision in the fiscal deficit to 3.1% of Gross Domestic Product (GDP).
• A higher deficit target would deepen fears of price pressures remaining persistent and force traders to pare Bank of England (BoE) dovish bets for the remainder of the year. According to the October 22-28 Reuters poll, the BoE is widely anticipated to cut interest rates by 25 basis points (bps) in its upcoming policy meeting on November 7. This would be the BoE’s second interest-rate cut this year, pushing key borrowing rates down to 4.75%.

Technical Analysis: Pound Sterling drops below 1.3000

The Pound Sterling falls below 1.3000 against the US Dollar (USD) in North American trading hours on Wednesday. The GBP/USD pair holds the lower boundary of a Rising Channel chart formation around 1.2900 on the daily time frame. 

The near-term trend of the Cable remains uncertain as it stays below the 50-day Exponential Moving Average (EMA), which trades around 1.3070.

The 14-day Relative Strength Index (RSI) stays above 40.00. A fresh bearish momentum would trigger if it fails to climb above it.

Looking down, the 200-day EMA near 1.2845 will be a major support zone for Pound Sterling bulls. On the upside, the Cable will face resistance near the 20-day EMA around 1.3060.