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- GBP/USD loses as UK 10-year Gilt yields weaken ahead of the looming November 26 budget.
- The Pound Sterling struggles as October’s softer inflation strengthened BoE rate cut bets.
- The US Dollar gains despite rising expectations of a Fed rate cut in December.
GBP/USD loses ground after three days of gains, trading around 1.3100 during the Asian hours on Tuesday. The Pound Sterling (GBP) came under pressure as UK 10-year Gilt yields edged lower to 4.54%, with investors awaiting the November 26 budget. Finance Minister Rachel Reeves is expected to find tens of billions of pounds to meet fiscal rules, while the OBR is set to downgrade growth and productivity forecasts.
GBP sentiment is further weighed by softer inflation, which eased to 3.6% in October and strengthened expectations of a Bank of England (BoE) rate cut. Markets now assign an 80% probability of a 25-bp cut in December, pushing gilt yields lower ahead of the budget.
The GBP/USD pair also remains subdued as the US Dollar (USD) recovers daily losses despite growing expectations of a Federal Reserve (Fed) rate cut in December intensifying, driven by recent dovish remarks from Fed policymakers.
The CME FedWatch Tool suggests that markets are now pricing in an 81% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, up from 71% probability that markets priced a day ago.
Fed Governor Christopher Waller told Fox Business on Monday that his primary concern is the weakening labour market, stating that inflation is “not a big problem” in light of recent softness in employment. Waller also suggested that the September payrolls figure is likely to be revised lower and cautioned that concentrated hiring is “not a good sign,” signalling his support for a near-term rate cut.
