The British Pound concluded trading on Friday, November 1, significantly depreciated against the U.S. Dollar, finishing at approximately 1.3097, marking its lowest point since April. The decline marked a third consecutive weekly loss as investors showed a preference for the Greenback, influenced by hawkish remarks from the Federal Reserve and escalating concerns regarding the United Kingdom’s fiscal outlook. The pair fluctuated between 1.3090 and 1.3240, unable to maintain a position above the 1.3200 level as the U.S. Dollar Index remained around 99.80, marking its peak in three months. The context illustrated a precarious blend of robust U.S. monetary policy, vulnerable UK fiscal positioning, and increasing doubt as the nation approaches its November budget. The recent meeting of the Federal Reserve has bolstered the strength of the dollar, as Chair Jerome Powell emphasized that additional rate cuts are “not guaranteed,” even with the reduction to the 3.75–4.00% range in October. Reports indicates that the likelihood of a rate cut in December has decreased to 63%, a significant decline from more than 90% just one week prior. A number of Fed officials endorsed this restrictive stance. Cleveland Fed President Beth Hammack expressed her opposition to the October cut, emphasizing that “monetary conditions must remain tight to ensure inflation’s return to target.” In the meantime, Raphael Bostic recognized the existing tension between price stability and employment, yet he underscored that “policy cannot ease prematurely.”
The recent statements have resulted in an increase in U.S. yields, with the 10-year Treasury yield remaining above 4.42%, and have propelled the DXY towards the significant 100.00 resistance level. The robust dollar has achieved a 2.1% increase month-to-date, representing its most impressive performance since July. For GBP/USD, this generated ongoing downward momentum, as investors shifted towards safer assets and took short positions on currencies vulnerable to fiscal and political uncertainties. The Office for Budget Responsibility and Institute for Fiscal Studies have presented a bleak forecast for the financial situation in Britain as we approach the November budget. Productivity is projected to decrease by 0.3%, and the budget deficit may expand by £21 billion by 2030 if current spending patterns continue. The IFS noted that the government is currently grappling with a £22 billion shortfall, which constrains Chancellor Rachel Reeves’ ability to maneuver without violating election commitments. Market sentiment deteriorated as fiscal tightening seemed inevitable. Market participants are currently anticipating either tax increases or heightened borrowing, both of which pose a risk of further decelerating growth. Consumer confidence experienced a significant decline, as GfK’s October reading reached its lowest point since December 2022, heightening concerns regarding weak domestic demand. The UK GDP growth rate, recently recorded at 0.2% for Q3, indicates minimal signs of acceleration, complicating the Bank of England’s ability to align with the Fed’s restrictive approach.
The pound’s inability to maintain the 1.3200 level initiated algorithmic selling and led to a series of stop-loss orders being triggered in the range of 1.3145–1.3160, a threshold that had been protected for two weeks prior. The significant decline to 1.3097 indicates a clear breakdown, paving the way towards the support area of 1.2950–1.2980, which has not been tested since March. Technical indicators continue to exhibit a bearish trend. The RSI (14) is currently at 37, indicating ongoing downward momentum, and the MACD is still expanding beneath its signal line. The 50-day EMA, presently positioned at 1.3270, has intersected below the 200-day EMA, indicating a bearish continuation pattern referred to as a death cross. If maintained, the subsequent objective corresponds to 1.2880, which represents the 0.618 Fibonacci retracement of the March–July recovery. Conversely, a short-term rebound toward 1.3160–1.3200 is feasible if U.S. yields decline or if the BoE indicates a potential for renewed tightening in November. However, at this moment, the most straightforward trajectory continues to be downward. The Federal Reserve maintains its commitment to a prolonged restrictive stance, whereas the Bank of England is encountering increasing pressure to ease policy in response to decelerating domestic growth. The UK’s inflation rate, recently noted at 2.3%, has decreased more rapidly than anticipated, providing policymakers with some leeway. However, BoE Governor Andrew Bailey maintains a cautious stance, cautioning that “premature easing risks reigniting price instability.”
The contrast between the Fed’s hawkish stance and the BoE’s careful neutrality intensifies the downward pressure on GBP/USD. The U.S. economy is experiencing a year-over-year expansion of 2.8%, in contrast to the UK, which is stagnating near zero growth. As a result, global investors are increasingly favoring U.S. dollar assets for their yield and stability. The macroeconomic imbalance has rendered GBP/USD highly responsive to U.S. interest rate expectations. A slight adjustment in Fed pricing currently results in significant movements in Sterling, exemplified by the 60-pip drop that occurred after Powell’s comments last Thursday. Options traders have made a clear move towards a bearish stance. The 25-delta risk reversal for one-month GBP/USD options is currently at –1.45%, marking the most negative level since February, indicating a robust demand for downside protection. Institutional flow data indicate significant put buying in the range of 1.3050–1.2950 strikes, aligning with forecasts of ongoing weakness. Derivatives analysts recommend bear put spreads as a cost-efficient hedge, acquiring 1.3050 puts while selling 1.2900s to optimize premium management. In the interim, the CME Sterling volatility index has increased by 5% month-over-month, indicating heightened uncertainty in anticipation of the UK budget announcement. Asset managers currently hold an underweight position in the pound. Hedge funds, however, adopt a more tactical approach, maintaining minimal short exposure in expectation of possible fiscal surprises in November.