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- GBP/USD fumbled early-session gains, reversing course and falling over 0.5% top-to-bottom.
- UK government budget difficulties are weighing on the Pound Sterling.
- Looming US labor data could see a spark of midweek momentum.
GBP/USD soured on Monday, starting off the December trading window declining around one-quarter of one percent, pushing back down from a key technical confluence region that will likely inspire further short selling behind the Pound Sterling (GBP) unless global flows into the US Dollar (USD) reverse course.
Pound struggles under the weight of political troubles
Chancellor of the Exchequer Rachel Reeves has come under fresh fire regarding the state of the UK’s government budget. Chancellor Reeves stands accused of grossly misreprenting the true state of the UK’s finances. Chancellor Reeves has continued to advocate for “unavoidable increases” in budgetary taxes, despite the Office for Budget Responsibility (OBR) noting recently that the current government is facing an unexpected surplus, rather than the forecast deficit, thanks to stronger-than-expected wage growth and higher-than-expected tax revenues offsetting declines in productivity.
Prime Minister Kier Starmer’s wobbly government in British Parliament continues to face political headwinds on all fronts, with polling numbers declining steadily and support from within Starmer’s own Labour party dwindling. Political instability is beginning to underpin market flows into (but mostly out of) the Pound Sterling, limiting topside potential for bullish Cable hopefuls.
Fed rate cut odds remain the focal point
The possibility of a December interest rate cut from the Federal Reserve (Fed) remains the key focal point for global markets, and US Dollar traders in particular. Official data remains limited following the longest US government funding closure in history, and the Fed is facing down a notable lack of meaningful labor and inflation metrics heading into its rate call on December 10. ADP Employment Change figures are due on Wednesday, and are expected to show another downturn in new hiring. With a lack of large-scale Nonfarm Payrolls (NFP) figures for both October and November, the Fed is faced with the difficult choice of cutting interest rates based on volatile private sector data, or holding off for another month or two while policymakers wait for a jumpstart in data collection and reporting to push fresh economic data to the forefront.
Federal Reserve (Fed) interest rate cut expectations are spreading into a messy pool heading into the tail end of the year. Rate markets are still pricing in nearly 90% odds of a third straight interest rate cut on December 10. However, rate traders are also pricing in 88% odds that the Fed will hold off in December and deliver a quarter-point rate trim in January.
GBP/USD price forecast
GBP/USD price action found a hard wall at the 1.3250 level on Monday, rejecting intraday bids and sending the Cable pair back toward the 1.3200 neighborhood. Converging 50-day and 200-day Exponential Moving Averages (EMA) at the 1.3250 region adds significant downward pressure to the chart zone, and a slow Stochastic Oscillator (14,5,5) testing the high side of overbought conditions is teasing that further downside momentum could be on the cards.
GBP/USD daily chart
