GBP/USD Falls to Near 1.2750 Ahead of BoE Mann Speech

USD Strengthens Amid Optimism About Trump’s Fiscal Policies

The GBP/USD currency pair has continued its downward trajectory, extending its losses for the fourth consecutive session. As of Wednesday’s Asian trading hours, the pair was hovering around the 1.2740 mark, with bearish momentum prevailing. The recent slide in GBP/USD is largely attributed to a stronger US Dollar (USD), bolstered by growing optimism about potential fiscal policies under former President Donald Trump.

Market analysts have pointed out that if Trump’s fiscal policies—specifically his plans to boost investment, government spending, and labor demand—are enacted, they could lead to increased inflationary pressures. This scenario has the potential to alter the current trajectory of US monetary policy, causing the Federal Reserve (Fed) to adopt a more hawkish stance. A shift towards a more restrictive policy could delay or even cancel further rate cuts, which has helped to prop up the USD in recent trading sessions.

Mixed UK Employment Data Weakens the Pound

The British Pound (GBP) also faces pressure from a weaker labor market in the UK, which was highlighted in mixed employment data released on Tuesday. According to the data for the three months ending in September, the UK’s labor market showed signs of softening. The ILO (International Labour Organization) Unemployment Rate rose to 4.3%, up from 4.0% in the previous period, and above market expectations of 4.1%. This marks the highest unemployment rate since 2022 and signals a potential cooling of the UK job market.

In addition, the Employment Change figure, which tracks the number of new jobs created in the economy, showed that UK employers added 219K new positions during the period. While this is still a positive number, it is significantly lower than the 373K jobs added in the previous quarter, pointing to a slowdown in job creation. These signs of labor market weakness have led traders to reassess their outlook for the Bank of England (BoE) and its approach to monetary policy, further weighing on the Pound.

Key Economic Data to Watch

US CPI Data Expected to Influence USD Movements

Looking ahead to the North American session, all eyes are on the upcoming release of the US Consumer Price Index (CPI) for October. This crucial inflation data is expected to show a 2.6% year-over-year increase in the headline CPI, while the core CPI, which excludes volatile food and energy prices, is anticipated to rise by 3.3%. These figures will be closely scrutinized by market participants for insights into the current inflationary environment in the US, which has significant implications for future Federal Reserve policy.

Should the CPI data come in higher than expected, it would fuel concerns that inflation is not yet fully under control, which could prompt the Fed to delay or scale back its plans to cut interest rates further. A more hawkish stance from the Fed would likely strengthen the US Dollar further, placing additional downward pressure on the GBP/USD pair. On the other hand, if inflation shows signs of cooling, it may encourage a more dovish outlook from the Fed, potentially easing some of the bullish momentum for the USD.

UK Employment Data Signals Softening Labor Market

Meanwhile, in the UK, the labor market data has been mixed but suggestive of a potential slowdown. The ILO Unemployment Rate increased to 4.3%, a level not seen since 2022, which is concerning for investors. Additionally, the Employment Change number, which tracks job creation, was also below expectations. The weak labor market data has intensified concerns about the health of the UK economy, particularly in light of ongoing inflationary pressures that the Bank of England (BoE) is working to address.

While the UK economy has shown resilience in recent months, these labor market signs suggest that recovery may be losing steam. This puts further pressure on the Bank of England, which has already been grappling with the dual challenge of curbing inflation and supporting economic growth. With the BoE’s monetary policy decisions in focus, the Pound may continue to face headwinds unless there is a shift in the labor market or clearer signs of improving economic conditions.

GBP/USD Daily Price Chart

Source: TradingView, prepared by Richard Miles

Bank of England’s Catherine Mann to Speak at BNP Paribas Global Market Conference

BoE’s Policy Outlook to Be Revealed in Key Speech

A key event for GBP/USD traders on Wednesday will be the speech from Catherine Mann, an external member of the Bank of England’s Monetary Policy Committee (MPC). Mann is set to participate in a panel discussion on “Female Central Bankers” at the BNP Paribas Global Market Conference. This event will be an important occasion for investors to gain further insights into the BoE’s current thinking on monetary policy and its approach to the UK’s economic challenges.

Given the UK’s ongoing inflation issues, which remain well above the BoE’s target, and the softer labor market conditions, Mann’s remarks could offer crucial guidance on how the central bank plans to navigate these difficulties. The BoE has already raised interest rates aggressively in recent years in an attempt to curb inflation, but policymakers remain cautious about tightening too much, given the risks to economic growth.

Mann’s speech will be watched closely for any hints on the BoE’s future policy stance. A more dovish tone could provide some relief for the Pound, potentially helping to stabilize the GBP/USD pair. Conversely, a more hawkish stance, acknowledging the need to keep inflation under control despite the softening job market, could further weigh on the Pound.

Outlook for GBP/USD

The GBP/USD pair faces a challenging near-term outlook, with a stronger US Dollar on the back of optimism surrounding Trump’s fiscal policies and upcoming US inflation data. Additionally, mixed UK employment data and concerns over a softening labor market continue to put pressure on the British Pound.

The upcoming US CPI release will be key in determining the next direction for USD, and any surprises in the data could influence the Fed’s next steps. In the UK, BoE’s Catherine Mann’s speech may provide important clues on how the central bank plans to address the UK’s inflation challenges and how this may affect the Pound.

As traders await more clarity on both the US and UK economic outlooks, GBP/USD may remain volatile, with market sentiment driven by any signs of policy divergence between the Fed and BoE.

Summary

• GBP/USD continues to fall, trading near 1.2750 as USD strengthens amid optimism about potential Trump fiscal policies.
• US CPI data for October will be closely watched, with inflation figures likely to influence future Fed policy.
• UK labor market shows signs of softening, with mixed employment data, putting pressure on the Pound.
• Catherine Mann, BoE Monetary Policy Committee member, will speak at the BNP Paribas Global Market Conference, offering insights into the BoE’s approach to economic challenges.
• The outlook for GBP/USD remains uncertain, with potential volatility driven by upcoming economic data and policy statements.