GBP – Sterling Remains Weak Amid Concerns Over This Week's Budget

The pound fell as low as 1.3094 against the dollar on Friday, its lowest level since April 14, as increasing political pressure surrounding Chancellor Lorraine Li weighed on the economy. Sterling fell about 2.3% in October, while UK government bond yields declined on concerns about the impact of Li's November budget on businesses, households, and overall economic activity. She will present the budget in late November. Under her own fiscal rules, there is very little room left to keep the UK's finances functioning properly; a growing number of people expect she may be forced to renege on her campaign promise to raise taxes. Meanwhile, traders believe the likelihood of a Bank of England rate cut is rising, although the bank is considered most likely to keep rates unchanged at its meeting this week. Money market traders see about a 45% chance of a 25 basis point rate cut at this week's meeting, compared to almost zero a few weeks ago.

As seen in the technical charts, the exchange rate has repeatedly been capped below the 100-day moving average in recent months. Currently, the 100-day moving average is at 1.3470. Without a return above this level, the GBP/USD pair may face further downward pressure. Attention should be paid to the May 12 low of 1.3137 and the August 1 low of 1.3138. This Wednesday's low was also 1.3137; therefore, a clear break below this level could lead to a double-top pattern and further declines. The subsequent support levels point to the 250-day moving average at 1.31 and the 1.30 level, with the next key levels expected to be 1.2800 and 1.2710. Resistance levels are seen at 1.3280 and the 25-day moving average at 1.3360, with the 100-day moving average at 1.3470 remaining a key level to watch, and the next level expected to be 1.36.

Forecast range:

Resistance: 1.3280 – 1.3360 – 1.3470* – 1.3600

Support: 1.3100 – 1.3000 – 1.2800 – 1.2710

Key Focus:
Thursday: UK October S&P Global Construction PMI (17:30)
Bank of England Interest Rate Decision and Meeting Minutes (20:00)

Friday: UK October Halifax House Prices (15:00)

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