Pound Sterling strengthens as traders pare BoE dovish bets

• The Pound Sterling gains sharply as traders pare BoE dovish bets.
• The BoE is expected to cut interest rates only once in the remaining two meetings this year.
• US NFP and the ISM Manufacturing PMI remained weak in October.

The Pound Sterling (GBP) jumps to near 1.2950 against the US Dollar (USD) in Friday’s New York session after posting a fresh 11-week low near 1.2850 on Thursday. The GBP/USD pair remains firm even though the US Dollar (USD) gains in the aftermath of the United States (US) Nonfarm Payrolls (NFP) data for October. The Bureau of Labor Statistics (BLS) reported that fresh payrolls were 12K, against estimates of 113K and the downwardly revised figure of 223K. The hiring trend seen in October is significantly weaker than usual due to the hurricane near Florida and labor strikes in the aerospace industry. The Unemployment Rate remained steady at 4.1%, as expected. Average Hourly Earnings, a key measure of wage growth, rose by 4% on year, as expected

"It is likely that payroll employment estimates in some industries were affected by the hurricanes; however, it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events," the BLS said.

Meanwhile, the ISM Manufacturing PMI for October has come in surprisingly weak. The Manufacturing PMI, which represents activities in the manufacturing sector, declined to 46.5. Economists expected the index to continue to contract but at a slower pace to 47.6 from 47.2 in September.

Going forward, the US Dollar will be influenced by the Federal Reserve's (Fed) interest rate decision, which will be announced on Thursday. According to the CME FedWatch tool, the central bank is expected to cut interest rates by 25 basis points (bps) to 4.50%-4.75%.

Daily digest market movers: Pound Sterling gains sharply against its major peers

• The Pound Sterling strengthens against its major peers on Friday as traders reassess the amount of interest-rate cuts that the Bank of England (BoE) is expected to deliver for the remainder of the year. 
• The BoE is expected to cut interest rates once in any of the two meetings in November and December. According to Reuters, traders see an 80% chance that the BoE will cut its key borrowing rates by 25 basis points (bps) on Thursday, pushing them lower to 4.75%.
• On the contrary, analysts at the Bank of Montreal (BMO) expect the BoE to leave interest rates unchanged at 5% in its meeting on Thursday due to various factors. "Considering the composition of the MPC, and the effect the budget measures will have on the BoE projections and on inflation persistence, we think at least 5 [policymakers] may well vote for an unchanged Bank Rate."
• Market speculation for BoE interest rate cuts has reduced after the United Kingdom (UK) Chancellor of the Exchequer unveiled a 40 billion pounds worth of tax increase, the highest since 1993, and measures to increase fiscal deficit to revive public spending and boost investment. Also, the Office for Business Responsibility (OBR) raised inflation forecasts for 2024 and 2025 to 2.5% and 2.6%, respectively, prompting traders to further pare back BoE rate-cut bets.

Technical Analysis: Pound Sterling aims to reclaim 1.3000

The Pound Sterling remains vulnerable near the fresh 11-week low of around 1.2850 against the US Dollar, which was posted on Thursday. The near-term trend of the GBP/USD pair remains uncertain as it stays below the 50-day Exponential Moving Average (EMA), which trades around 1.3060 but has found a cushion near the 200-day EMA around 1.2850.

The GBP/USD pair also delivers a breakdown of the Rising Channel chart formation on the daily time frame, which results in a bearish reversal.

The 14-day Relative Strength Index (RSI) slides back into the 20.00-40.00 range, signaling a fresh bearish momentum.

Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 50-day EMA around 1.3060.