Pound Sterling surges ahead of UK budget, US labor and economic data

The Pound Sterling (GBP) gains to near the psychological resistance of 1.3000 against the US Dollar (USD) in Monday’s North American session. The GBP/USD pair rises sharply as the US Dollar falls back, with investors focusing on a slew of United States (US) economic data this week.

The US Dollar Index (USD), which gauges Greenback’s value against six major currencies, revisits an almost three-month high at around 104.60 on Monday. Investors will pay close attention to the US preliminary Q3 Gross Domestic Product (GDP) and the Nonfarm Payrolls (NFP) data for October, which will exhibit the current status of economic growth and labor demand, respectively. The economic data will significantly influence market speculation regarding the Federal Reserve (Fed) interest rate outlook for the remaining year.

The Fed started its policy-easing cycle with a larger-than-usual interest rate cut of 50 basis points (bps) in September as officials were worried about growing economic risks, with confidence over inflationary pressures remaining on track to the bank’s target of 2%.

For the remainder of the year, traders see the central bank reducing interest rates by 25 basis points (bps in November and December, according to the CME FedWatch tool.

Meanwhile, the uncertainty over the US presidential election will continue to support the US Dollar. In meetings at the week-long International Monetary Fund (IMF) event last week, financial experts vividly discussed the outcome of the US elections and possible consequences. As former President Donald Trump has vowed to raise tariffs on all nations, central bankers are worried that it could ramp up costs associated with global supply chain mechanism if he wins against current Vice President Kamala Harris.

Daily digest market movers: Pound Sterling outperforms while US Dollar falls back

• The Pound Sterling outperforms its major peers, except the Euro, on Monday ahead of the United Kingdom's (UK) Autumn Forecast Statement, which will be announced on Wednesday. Labour's first budget budget is less likely to offer higher spending by the administration as high inflation is still a major issue for the government. The Chancellor of the Exchequer will also respect commitments made in their election manifesto.
• According to Sky News, the government will honor its commitments and will not raise income tax and national insurance but is expected to hike employers’ national insurance by up to 2 percentage points. The Labor Party is expected to offer a large boost to housing affordability.
• Meanwhile, growing speculation for the Bank of England (BoE) to cut interest rates in all two remaining meetings of the year could dampen the Pound Sterling’s appeal. Market expectations for BoE to cut interest rates by 25 bps in November and December have been prompted by BoE Governor Andrew Bailey’s dovish commentary in discussions at the sidelines of the IMF meeting last week.
• “Disinflation is happening, I think, faster than we expected it to, but we have still genuine question marks about whether there have been some structural changes in the economy,” Bailey said, Reuters reported.

Technical Analysis: Pound Sterling aims to climb above 1.3000

The Pound Sterling rises to near the key resistance of 1.3000 against the US Dollar (USD) in North American trading hours on Monday. However, the overall trend remains uncertain as the occurrence of a bear cross, represented by the 20- and 50-day Exponential Moving Averages (EMAs) near 1.3080, suggests more weakness ahead.

The 14-day Relative Strength Index (RSI) rebounds and attempts to get inside the 40.00-60.00 range, indicating a strong effort by Sterling bulls for a bullish reversal.

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 round-level resistance of 1.3100.