Sterling Faces Downside Toward 1.3000
The Pound Sterling (GBP) continued to underperform against major currencies on Tuesday, sliding to near 1.3070 against the United States Dollar (USD). The decline comes amid growing concerns that UK Chancellor of the Exchequer Rachel Reeves may introduce tax increases in the upcoming Autumn Budget to address a £22 billion fiscal shortfall. Investors are increasingly cautious, pricing in the possibility of tighter fiscal policy and its implications for monetary easing.
According to reports from The Sunday Times, Chancellor Reeves is evaluating over 100 tax and spending options, with a particular focus on high-income earners. Her recent remarks emphasized that inflation has been “too slow to come down,” exposing the UK economy to elevated borrowing costs. Reeves stated that her upcoming budget decisions will prioritize reducing inflationary pressures.
During Tuesday’s European session, the GBP/USD pair weakened further as the United States Dollar remained firm. The US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, hovered near 99.85 after briefly touching a three-month high around 100.00.
Market sentiment shifted after comments from the President of the United States Federal Reserve, who noted that a December rate cut is “far from a foregone conclusion.” The CME FedWatch tool shows that the probability of a 25 basis point rate cut at the December meeting has dropped to 67.3%, down from 94.4% a week earlier. San Francisco Fed President Mary Daly echoed this cautious stance, stating that future policy decisions will be guided by incoming data and that monetary policy must remain modestly restrictive given inflation’s persistence above the 2% target.
Looking ahead, the GBP/USD pair will be influenced by the US ADP Employment Change data for October, scheduled for release on Wednesday. With Nonfarm Payrolls data unavailable due to a federal shutdown, investors will closely monitor ADP figures. Economists expect the report to show a net gain of 24,000 private-sector jobs, following a loss of 32,000 in September. Signs of labor market resilience could further dampen expectations for additional rate cuts by the Federal Reserve.
From a technical standpoint, the Pound Sterling remains under pressure, trading below the 200-day Exponential Moving Average (EMA) at 1.3279. The 14-day Relative Strength Index (RSI) has dropped below 30.00, indicating oversold conditions and reinforcing the bearish momentum.
Key support lies at the psychological level of 1.3000. A break below this threshold could open the door to deeper losses. On the upside, resistance is seen near the October 28 high of 1.3370.
The Pound Sterling is facing a complex mix of fiscal and monetary headwinds. With Chancellor Reeves signaling potential tax hikes and the Bank of England’s policy outlook uncertain, GBP remains vulnerable. Meanwhile, the United States Dollar continues to benefit from reduced expectations of rate cuts and resilient economic data. Traders should remain alert to upcoming employment figures and central bank commentary, which could further shape the trajectory of GBP/USD in the weeks ahead.