As one sign of the impact, on Friday Pound Sterling plummeted against the US Dollar. In the European trading session, it was still holding close to 1.3130. This latest move marks a -0.4% move, more bad news for the British currency in this overall bearish scenario. It still trades under the 200-day Exponential Moving Average (EMA), located at approximately 1.3276. The currency’s woes are tied to dire economic indicators joined to China’s political and economic turn-in which now hampers investor confidence.
The Pound Sterling’s decline comes amid increasing fiscal vulnerabilities in the UK. Recent reports from the Financial Times suggest that Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves are considering abandoning their plans to raise both basic and higher tax bands in the upcoming Autumn Budget scheduled for November 26. This change in policy calculus has spooked investors, adding to the pressure on the currency.
Even the US Dollar is at risk amid a cocktail of domestic political uncertainty. Based on other conditions, we are seeing investors take a wait-and-see approach as we await some key economic data releases from the United States. A recent government shutdown put a halt on these key data points. It has raised the level of general uncertainty in the market. These pressures have placed Pound Sterling firmly on the back foot. It’s failing to retreat and regroup in the face of its competition.
So it’s getting a little more complicated on the Pound front. Intensifying these expectations is growing belief that the Bank of England (BoE) will deliver a rate cut in its December policy meeting. That’s given rise to new speculation as disappointing employment data for the three months ending in September. To make matters worse, the Gross Domestic Product (GDP) eked out just a 0.1% growth in the third quarter. The GDP measurement went from being an important indicator of economic activity in the UK to being a primary national statistic. Its dismal performance has contributed to a growing backlash against the currency.
As of Friday, the 10yr UK gilt yields are up 0.8%, and near 4.40%. The 14-day Relative Strength Index (RSI) for Pound Sterling barely manages to remain above the bearish threshold of 40.00. This trend is indicative of a potential weakening in momentum. Analysts are saying that should the RSI continue its descent it might indicate new bearish momentum for the currency.
Looking forward, technical indicators are pointing toward the April low just below 1.2700 becoming an important support area for Pound Sterling. On the flip side, the October 28 peak at just below 1.3370 may act as a powerful headwind to any recovery.
The combination of escalating fiscal risks, weak economic data, and uncertain interest rate outlooks has created a challenging environment for Pound Sterling. As investors await clearer signals regarding both UK economic policy and broader market conditions, it remains to be seen how these factors will influence currency valuations moving forward.