GBP/USD remains stable on Wednesday after experiencing a 0.90% decline on Tuesday, prompted by UK finance minister Rachel Reeves indicating the possibility of tax increases to adhere to fiscal regulations. The pair is currently trading at 1.3028, showing minimal movement at this moment.
GBP/USD reduces losses following UK finance chief Rachel Reeves’ indication of tax increases to achieve fiscal objectives. The Bank of England is anticipated to maintain its current interest rates, although subdued inflation continues to support speculation regarding a potential rate cut in December. The robust US ISM Services data, along with positive ADP jobs figures, have reduced the likelihood of a December Fed rate cut to approximately 64%.
> Sterling finds stability around 1.3030 as market sentiment remains cautious and US data shows resilience : On Tuesday, Reeves communicated that the UK is encountering difficulties since her initial budget, with increasing inquiries regarding which taxes she would increase to maintain budgetary alignment. Experts at Société Générale stated, “She is justifying tough decisions to come in the budget.” This occurrence indicates that the manifesto pledges are unlikely to be adhered to strictly. Meanwhile, the Bank of England is anticipated to maintain rates at their current level during its meeting on Thursday. However, the recent inflation figures fell short of expectations, which heightens the likelihood that the BoE may reduce borrowing costs by year-end.
In the latest data, the ISM Services PMI indicates an increase in business activity for October, with the Index climbing to 52.4, a rise from 50 in September. Despite an uptick in business activity, the Prices Paid subcomponent has reached its peak at 70, marking the highest level since October 2022, signaling inflationary pressures. Recently, the ADP National Employment Change indicated that non-farm jobs surpassed the anticipated figure of 25K, showing an increase of 42K in October, a revision from September’s adjusted figure of -29K. In light of the recent tranche of US economic data, market participants have adjusted their expectations regarding a 25-basis point rate cut by the Fed at the forthcoming December meeting, reducing the odds to 64% from 68% prior to the ADP report’s release.