The GBP/USD pair is starting the new week on a softer note, failing to build on its gains from the past two days, primarily due to a broadly firmer US Dollar (USD). Despite the dip, spot prices remain comfortably above last week’s swing low, currently trading just below the 1.3100 mark, with a modest daily loss of less than 0.15%.
The US Dollar Index (DXY) is hovering near its highest level since late May, driven by diminishing expectations of aggressive Federal Reserve (Fed) rate cuts. The likelihood of another December rate cut by the US central bank has further decreased following the release of the mostly upbeat (albeit delayed) US Nonfarm Payrolls (NFP) report for September. This positive jobs data has alleviated concerns about weakening economic momentum, which had been exacerbated by the longest-ever US government shutdown, thereby bolstering the USD and consequently weighing on the GBP/USD pair.
Conversely, the British Pound (GBP) continues to underperform due to uncertainty surrounding the upcoming UK budget announcement and increasing bets for an interest rate cut by the Bank of England (BoE) next month. These factors are seen as significant headwinds for the GBP/USD pair. However, traders appear hesitant to make aggressive directional moves, preferring to await UK Chancellor Rachel Reeves’ Autumn Budget on Wednesday. Additionally, key US macro data releases this week will be crucial in providing fresh impetus.
This week’s busy US economic calendar includes the delayed Producer Price Index (PPI) and Retail Sales data, along with the Conference Board’s Consumer Confidence Index, all due on Tuesday. These will be followed on Wednesday by the preliminary Q3 GDP print and the Personal Consumption Expenditure (PCE) Price Index report. The PCE data, in particular, will offer more insights into the Fed’s potential rate-cut path, influencing near-term USD dynamics and thus helping to determine the next directional move for the GBP/USD pair.
