Pound Sterling continues to decline as weak UK data prompts BoE dovish bets

• The Pound Sterling weakens against its major peers as the BoE is expected to cut interest rates in December.
• BoE's Greene argues in favor of holding interest rates at their current levels for longer.
• Weakening US job market conditions prompt Fed dovish bets.

The Pound Sterling (GBP) underperforms its major currency peers, except the Japanese Yen (JPY), on Wednesday. The British currency faces selling pressure amid growing expectations that the Bank of England (BoE) will resume its monetary expansion cycle at the December meeting.

Traders expect the BoE to reduce interest rates further by 20 basis points (bps) this year, according Reuters. Market participants have raised dovish bets, following the release of the United Kingdom (UK) labour market data for the three months ending September, released on Tuesday.

The employment report showed that employers laid off 22K workers. This is the first time the overall labour force has been reduced since March 2024. Additionally, the ILO Unemployment Rate accelerated to 5%, the highest level seen since March 2021.

Meanwhile, consumer inflation expectations are also expected to cool off as growth in Average Earnings, a wage growth measure, has slowed. In three months ending September, Average Earnings Excluding Bonuses decelerated to 4.6% on an annualized basis, the slowest growth seen in over three years.

Contrary to accelerating BoE dovish expectations, policymaker Megan Greene stated at a UBS conference in London on Tuesday that the central bank should continue holding interest rates at their current levels, while expressing confidence that job conditions and wage growth will start improving from here. "I am worried about inflation persistence in the UK, means monetary policy needs to be more restrictive than otherwise," Greene said, and added, "wage settlements data for next year from surveys is higher than we would like to see."

Daily digest market movers: Pound Sterling ticks down against US Dollar

• The Pound Sterling trades subduedly around 1.3145 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair has come under pressure after ending a four-day winning streak on Tuesday, following the UK employment data release. Meanwhile, the US Dollar trades cautiously against its major peers due to increasing Federal Reserve (Fed) dovish expectations.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, struggles near its weekly low around 99.30 posted on Tuesday.
• According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to the 3.50%-3.75% range in the December meeting has increased to 68% from 62.4% seen on Monday.
• Fed dovish speculation accelerated after the release of the ADP Employment Change four-week average data, which demonstrated further weakness in job growth. Private payroll processor ADP reported that employers laid off an average of 11.25K workers each week for the four weeks ending October 25.
• Lately, almost all Federal Open Market Committee (FOMC) members have warned of downside labour market risks, and have kept the door open for further interest rate cuts if job growth deteriorates further.
• Meanwhile, the reopening of the US government after the longest shutdown in history is expected to improve the economic outlook. On Monday, the US Senate advanced a government funding bill to the House of Representatives, where Speaker Mike Johnson has assured that it will be passed on Wednesday.

Technical Analysis: Pound Sterling wobbles around 1.3140

The Pound Sterling trades inside Tuesday's trading range around 1.3140 against the US Dollar on Wednesday. The overall trend of the pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3269.

The 14-day Relative Strength Index (RSI) struggles to return above 40.00. A fresh bearish momentum would emerge if the RSI resumes its downside journey.

Looking down, the April low near 1.2700 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.