The Pound Sterling is holding its ground against the U.S. dollar, changing hands around 1.3150 during Asian trade on Tuesday. With the market approaching key economic data points, traders are increasingly on edge. They’re especially keeping an eye on the UK Consumer Price Index (CPI) data for October and the U.S. non-farm payroll (NFP) numbers as well. As of writing, GBP/USD is trading at 1.3156, flat on the day as traders remain cautiously optimistic while weighing risk appetite and the macro outlook.
Fears for the US economic outlook are foremost on traders’ minds. The subsequent performance of U.S. equity markets has been dismal, with just a handful of indices still in the green. As inflation continues to run rampant so does the uncertainty as everyone awaits NVIDIA’s third quarter earnings release. This report has the potential to really move the market’s mood. The Pound Sterling languished against its major FX counterpart on Tuesday. This change points to a greater hesitance in the market.
UK Economic Outlook and Budget Deficit Forecast
The Office for Budget Responsibility (OBR) has made an important call on the matter earlier this week. They revised down their budget deficit forecast from £35 billion to £20 billion, raising eyebrows about the UK’s fiscal trajectory. This change could be the beginning of a new approach to economic management that will be needed as policymakers react to quickly changing market conditions. Shadow Chancellor Rachel Reeves has talked about raising this revenue by lowering thresholds and reforming salary sacrifice. She’s set a target for a smaller overall budget and does not want to raise taxes significantly.
Reeves’s approach seems to imply a long-term preference for smarter fiscal policies that would help in both stabilizing the economy and encouraging long-term growth. With future CPI data soon to emerge and offer key clues on the inflation fight, investors are jittery. The anticipated release of this data on Wednesday could significantly impact trading strategies and market movements for the Pound Sterling.
Market Sentiment Ahead of Key Data Releases
With GBP/USD continuing to trade heavy for the third straight session, overall mood on the financial markets show traders are in a wait-and-see mode. This makes the release of next week’s UK CPI data very important. More importantly, it will shed light on the inflationary pressures on the British economy. Analysts suggest that higher inflation readings could prompt policy adjustments from the Bank of England, influencing future interest rate decisions.
The very real vulnerabilities in the global economy as a whole — especially in the U.S. — only add to the chilly vibes on global equity markets right now. Investors are acutely attuned to the fact that any change in underlying economic conditions, both at home and abroad, can lead to dramatic changes in currency valuations. As a result, many are waiting on the sidelines before making big steps until they get more definitive signals from data still to come.