GBP/USD fell over 0.50% on Tuesday as market participants processed the news from the UK’s Office for Budget Responsibility, which intends to reduce productivity, resulting in a significant gap in the public finances. Currently, the pair is trading at 1.3280, having reached a low of 1.3247, marking its lowest point since August 1.
GBP/USD has fallen below 1.3300 for the first time since mid-October, reflecting a deteriorating productivity outlook. OBR’s strategy to reduce productivity forecasts expands the fiscal gap, placing additional pressure on Chancellor Reeves as the budget approaches. Despite the dip, the divergence between the Fed and BoE could mitigate losses as markets anticipate a 25 bps Fed cut this week.
> The Pound experiences a decline of over 0.50% following the OBR’s warning of a £20B impact on public finances : The US Dollar is experiencing a downturn during the North American session due to an absence of catalysts associated with the Greenback. The US Dollar Index, which monitors the performance of the USD relative to a basket of six currencies, has decreased by 0.10%, currently standing at 98.70. President Donald Trump of the United States advanced his tour in Asia, formalizing an agreement with Japanese Prime Minister Sanae Takaichi regarding the US-Japan alliance and establishing a framework for the secure supply of critical minerals and rare earth elements. The OBR in the UK is anticipated to reduce its productivity forecast by approximately 0.3%, translating to a £20 billion impact on the nation’s public finances. “That automatically widens the fiscal hole that (finance minister Rachel) Reeves needs to fill with the Autumn budget.” In addition to those developments, the divergence among central banks supports additional upward movement for the GBP/USD pair.
The Federal Reserve is anticipated to declare a 25 basis point rate cut on Wednesday, positioning the fed funds rate within the 3.75%-4% range. Conversely, the Bank of England is anticipated to maintain rates during the meeting on November 6. Nonetheless, the probability of a rate cut in December hovers around 35%, subsequent to last week’s inflation report, which indicated signs of stabilization before continuing its decline. GBP/USD exhibits indications of weakness, currently positioned just above the 200-day Simple Moving Average at 1.3233. A breach of this level may lead to a potential test of 1.3200. From a momentum perspective, sellers are currently in a stronger position, as the Relative Strength Index has shifted to a bearish trend and continues to decline. Conversely, should GBP/USD rise above 1.3300, it is essential for buyers to push the spot price beyond the 20-day SMA at 1.3380. Further potential exists above 1.3400.