Positive PMI data push GBP near 1.300 amid budget discussions
Positive PMI data push GBP near 1.300 amid budget discussions
Pound sterling gains, but UK fiscal policies support bearish sentiment
The British pound is gradually recovering against the US dollar, but is unlikely to fully offset losses for the month.
On October 25, the pound reached close to the 1.300 mark, trading around 1.299 at the time of writing.
Short-term prospects for the pound have improved after Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann spoke positively about inflation data from September at an IMF panel discussion.
Mann highlighted that inflation in the services sector, now below 5%, still has a long way to go to meet the BoE's 2% target.
Additionally, Mann expressed reservations about rate cuts, saying it would be "premature to cut rates if there is structural resilience in wage and pricing dynamics."
Meanwhile, Thursday's preliminary PMI report showed increased activity in both manufacturing and services, albeit at a slower pace than in September.
Based on this, traders are betting on BoE rate cuts in November, aligning with BoE Governor Andrew Bailey's stance.
Bearish Outlook
Currency analysts Quek Ser Leang and Lee Sue Ann from UOB Group suggest the pound will trade in a range of 1.2930 to 1.3000. However, in the long term, GBP could drop to 1.286.
ING currency analyst Francesco Pesole notes that a level of 1.280 may be reached soon as market focus shifts to the UK budget announcement next Wednesday, along with Chancellor Rachel Reeves's statement about amending fiscal rules to attract billions in new investments.
There is consensus that UK bond yields may have additional growth potential. However, for the FX market, the concern is whether this lag could turn into uncontrolled volatility.
Before Catherine Mann's speech, traders were convinced BoE would cut rates twice more this year, in November and December, while the US dollar outlook appears steadier.
