Pound Sterling falls further against US Dollar, Fed Powell’s speech in focus

The Pound Sterling (GBP) extends its losing streak for the third trading day against the US Dollar (USD) on Thursday. The GBP/USD pair slides to near 1.3365 as the US Dollar Index (DXY) rebounds after a slight corrective move.

In the European session, the DXY, which tracks the Greenback’s value against six major currencies, bounces back to near the two-month high of 99.00 after correcting to near 98.70.

Three-week-long rally in the US Dollar faced slight selling pressure after the release of the Federal Open Market Committee (FOMC) minutes on Thursday of the September policy meeting, which stated that officials were confident about adjusting interest rates on the downside amid growing labour market risks. On inflation, policymakers expressed relief, stating that upside risks to price pressures have either diminished or not increased.

The FOMC Minutes also showed that officials judged it would likely be “appropriate to ease policy further over the remainder of 2025”. According to the CME FedWatch tool, traders also see a 78.6% chance that the Fed will cut interest rates by 25 basis points (bps) in each of its two remaining policy meetings this year.

For more cues on the monetary policy outlook, investors await the speech from Fed Chair Jerome Powell at the Community Bank Conference in Washington, scheduled for 12:30 GMT. Investors would like to know the overall impact of the ongoing US government shutdown on the economic and monetary policy outlook.

Pound Sterling underperforms amid renewed UK fiscal debt concerns

• The Pound Sterling underperforms its major currency peers on Thursday, with investors turning cautious over the United Kingdom (UK) economic outlook ahead of the Autumn Budget release in late November.
• On Wednesday, UK Chief Secretary to the Treasury James Murray stated that the administration would not allow agencies to use emergency funds to fund pay rises, aiming to restrict wage spiral. “This prudent but tough approach to public spending is what will help build a stable economy,” Murray said in a letter shared by the finance ministry, Reuters reported.
• The scenario indicates that the UK government is highly concerned about limiting the overall spending to respect its own fiscal rules, which it laid down in budget announced in 2024. Financial market participants expect the Treasury to cut public spending or raise taxes, or a combination of both, to limit ballooning fiscal borrowings. In July, concerns over UK fiscal debt escalated after Chancellor of the Exchequer Rachel Reeves announced an increase in welfare spending.
• On the monetary policy front, investors remain mixed over whether the Bank of England (BoE) will cut interest rates again in any of the two meetings remaining this year. The uncertainty over the BoE’s monetary policy outlook is based on deteriorating job demand and sticky inflationary pressures.
• On Wednesday, BoE Chief Economist Huw Pill stated in a speech at the University of Birmingham that the monetary policy should be drawn in such a way that it should not let inflationary pressures go out of control.
• The next major trigger for the Pound Sterling will be the employment data for the three months ending in August, which will be released on Tuesday.

Technical Analysis: Pound Sterling sees more downside below 1.3330

The Pound Sterling declines to near 1.3365 against the US Dollar on Thursday, the lowest level seen in 10 days. The near-term trend of the GBP/USD pair remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 1.3458.

The 14-day Relative Strength Index (RSI) slides to near 40.00. A fresh bearish momentum would emerge if the RSI falls below that level.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the September 17 high of 1.3726 will act as a key barrier.