GBP/USD Forecast: Bulls remain at the mercy of USD price action ahead of UK budget

The GBP/USD pair attracts buyers for the fourth straight day and holds steady above the 1.3100 round figure through the first half of the European session on Tuesday. Traders opt to lighten their bearish bets around the British Pound (GBP) ahead of the UK Autumn budget on Wednesday. The US Dollar (USD), on the other hand, extends its consolidative price move amid mixed signals from Federal Reserve (Fed) officials and turns out to be another factor acting as a tailwind for spot prices. However, the uncertainty surrounding UK Chancellor Rachel Reeves’ fiscal statement might keep a lid on a further appreciating move for the currency pair.

In fact, Reeves reportedly decided to abandon her plans to increase income tax on the back of the better-than-expected economic forecasts and instead might shift toward generating revenue through other methods. Furthermore, a series of downbeat UK economic data released recently lifted bets for another interest rate cut by the Bank of England (BoE) in December, which might further hold back the GBP bulls from placing aggressive bets and cap the GBP/USD pair. The UK Office of National Statistics reported that the Consumer Price Index (CPI) cooled to a four-month low in October. Adding to this, UK Retail Sales slumped by 1.1% in October, which the disappointing PMI data pointed to a clear cooling in services activity in November. This backs the case for further policy easing by the BoE and could weigh on the GBP.

Meanwhile, New York Fed President John Williams said on Friday that interest rates could fall in the near term without putting the central bank's inflation goal at risk. Adding to this, Fed Governor Christopher Waller said on Monday that the job market is weak enough to warrant another quarter-point rate cut in December. According to CME Group's FedWatch tool, the futures-market-implied probability of a 25 basis points rate reduction to a range of 3.50% to 3.75% in December now stands at around 80%. This, in turn, keeps the USD bulls on the defensive ahead of the delayed release of the US Producer Price Index (PPI) and Retail Sales data, due later this Tuesday. Nevertheless, the aforementioned fundamental backdrop warrants some caution before confirming that the GBP/USD pair has bottomed out and positioning for any meaningful upside.

GBP/USD daily chart

Technical Outlook

Any subsequent move up is likely to confront some hurdle near the 1.3155-1.3160 region, above which a fresh bout of short-covering move could lift the GBP/USD pair to the 1.3200 round figure. Some follow-through buying should pave the way for an extension of the positive momentum towards challenging a technically significant 200-day Simple Moving Average (SMA) support-turned-resistance, around the 1.3300 neighborhood.

On the flip side, the 1.3040-1.3035 region, or last week's swing low, might continue to lend some support to the GBP/USD pair ahead of the 1.3000 psychological mark. A convincing break below the latter would expose the next relevant support near the 1.2950 zone before spot prices extend the downward trajectory and eventually drop to sub-1.2900 levels.