GBP/USD Forecast: Seems vulnerable amid BoE rate cut bets, ahead of UK budget next week

The GBP/USD pair trades with a positive bias for the second straight day on Friday, though it remains confined in the previous day's broader trading range, around the 1.3100 round figure during the early European session. The US Dollar (USD) moves away from its highest level since late May, touched in the aftermath of mostly upbeat US employment details on Thursday, and offers support to spot prices. However, the dismal UK macro data caps the British Pound (GBP) ahead of the UK budget announcement next week and acts as a headwind for the pair.

The US Bureau of Labor Statistics published the closely-watched Nonfarm Payrolls report on Thursday, which showed that the economy added 119K new jobs in September. The reading followed the 4K decrease (revised from +22K) recorded in August and surpassed the market expectation of 50K. Additional details revealed that Average Hourly Earnings held steady at 3.8% YoY, compared to the estimates of 3.7%, overshadowing an uptick in the Unemployment Rate from 4.3% to 4.4% and validating less dovish Federal Reserve (Fed) expectations.

Moreover, minutes from the October FOMC meeting, released on Wednesday, showed that policymakers remained divided about how to proceed and cautioned that cutting interest rates further could risk entrenched inflation. Traders were quick to react and are now pricing in around 35% probability of another rate cut in December. This, to a larger extent, has helped offset concerns about the weakening economic momentum on the back of the longest-ever US government shutdown and turned out to be a key factor behind this week's USD move higher.

Meanwhile, the UK Office for National Statistics reported this Friday that Retail Sales unexpectedly slumped by 1.1% in October, marking the first monthly decline since May. The slowdown could be attributed to the uncertainty surrounding the upcoming UK budget, especially after Chancellor Rachel Reeves’ U-turn on income tax hikes. Furthermore, signs of easing inflation in the UK back the case for an interest rate cut by the Bank of England (BoE) in December, warranting caution before confirming that the GBP/USD pair has bottomed out.

GBP/USD daily chart

Technical Outlook

Any subsequent move up beyond the overnight swing high, around the 1.3120-1.3125 region, is likely to confront some hurdle near the 1.3155-1.3160 region, or the top end of the weekly range. However, a sustained strength beyond should pave the way for a move towards reclaiming the 1.3200 round figure. Some follow-through buying has the potential to lift the GBP/USD pair to a technically significant 200-day Simple Moving Average (SMA) barrier, around the 1.3300 neighborhood.

On the flip side, the 1.3040-1.3035 region, or the overnight trough, could offer immediate support ahead of the 1.3000 psychological mark. A convincing break below would expose the next relevant support near the 1.2950 zone before the GBP/USD pair extends the downward trajectory and eventually drops to sub-1.2900 levels.