Sterling takes a breather near 1.30, ahead of the UK budget release
Sterling bulls struggled ahead of key psychological resistance by 1.30 as the market awaited the upcoming release of the UK budget on Oct. 30 and then the Nov. 5 U.S. election, though bears have abandoned recent tests of support by 1.29.
GBP/USD bulls face a test of resolve with the delivery of UK finance minister Rachel Reeves' first budget, which is expected to focus on tax increases and spending cuts to address large pandemic-era deficits.
The path ahead for the UK economy is open to risks as forecasts indicate inflation remaining steady, just above the BoE's 2% target, and sterling STIR futures are pricing a further 41bp of rate cuts by the Dec. 19 MPC meeting, hinting at slowing UK growth.
If inflation persists and the economy fails to rebound, then the policy outlook could become cloudy for financial markets, including sterling.
Adding to the uncertainty is the upcoming U.S. election. If Trump were to win, investors expect that to keep U.S. rates and the dollar high, which could exert downward pressure on the pound.
For now, bulls need a close above the falling 10-DMA to gain momentum for a test of early October highs near 1.32.
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GBP Chart: https://tmsnrt.rs/3YnT9nd
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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