British pound price rises to 1.29 on expectations of slower Bank of England rate cuts
Sterling recovers slightly from recent lows at end of week
The British pound trades above 1.29 against the US dollar on November 1, as traders reassess the Bank of England's dovish plans
After reaching a new 11-week low of 1.285 against the dollar on October 31, the British pound managed to recover slightly by Friday.
Sterling recovers slightly from recent lows at end of week
Traders are revising expectations for further rate cuts by the Bank of England (BoE) as the Office for Budget Responsibility (OBR) raised inflation forecasts for 2024 and 2025 to 2.5% and 2.6%, respectively, and Chancellor of the Exchequer Rachel Reeves outlined plans to raise taxes by £40 billion.
The BoE is now expected to cut rates at one of its two remaining meetings this year. Bank of Montreal (BMO) analysts forecast that the BoE will keep rates unchanged at 5% on November 7, although 80% of traders expect a rate cut in November, bringing the main rate down to 4.75%.
"Given the composition of the Monetary Policy Committee (MPC) and the impact of budgetary measures on the BoE's forecasts and inflation resilience, we believe at least five committee members may vote to keep the bank rate unchanged," BMO said.
U.S.: Job Data Diverges
Another factor supporting the British currency could be the nonfarm payroll (NFP) report for October in the U.S., which is expected to diverge from the previously published ADP Employment Change report.
The NFP is projected to show 113,000 new jobs created in October, down from 254,000 in September, while the ADP report indicated 233,000 new hires. Additionally, data on initial jobless claims for the week ending October 25 showed a decline to 216,000, compared to the expected 230,000, marking the lowest level in 22 weeks.
Improved demand for labor allows the Federal Reserve to reduce rates more gradually and potentially make two further cuts before the end of the year.
Meanwhile, the U.S. Dollar Index (USD), which measures the dollar’s value against six major currencies, reached nearly a three-month high of about 104.60 on Monday.Traders are awaiting preliminary U.S. GDP data for the third quarter and non-farm payrolls (NFP) data for October to assess the current state of the U.S. economy and labor demand.
