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The dollar will be challenged by some welcome data.
The pound to dollar exchange rate (GBP/USD) has stabilised this November and an extension of that recovery looks possible in the coming days.
The exchange rate’s movement is overwhelmingly determined to dollar price action, which means it can discount much of the recent domestic UK political turmoil linked to next week’s budget event.
Sure, GBP/USD came under pressure last Friday when the government U-turned on previous plans to raise income taxes, but ultimately losses proved limited and confirmed that it’s the dollar that really matters.
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The dollar has edged lower over recent days and allowed GBP/USD to recover back above 1.31 as investors prepare for the return of official U.S. economic data releases now that the Federal shutdown has been resolved.
This should provide some clearer guidance as to how the U.S. economy is performing, and it’s little wonder that traders have paused the dollar’s advance: conviction trades will be put on hold until the official data gives some certainty.
“After a long period with almost no statistical news, American statistics will start to be published again and probably the flow will begin with a real heavyweight: the labour market in September, which is scheduled to be presented on Thursday. Consensus expects employment to accelerate to +50,000 from +22,000 in August and the unemployment rate to remain unchanged at 4.3%,” says a note from Commonwealth Bank.
Commonwealth thinks the dollar will soften in the coming days, and this should help GBP/USD recover:
“GBP/USD will increase towards 1.3283, its 200-day moving average, this week if the USD falls as we expect.”
The Greenback rose sharply during October and pressured GBP/USD into the 1.30s as investors rapidly withdrew bets for a rate cut at the Federal Reserve this December. This, amidst signs of rising inflationary pressures and communications from members of the Federal Reserve’s policy committee that indicated little conviction for the need to cut rates in December.
The above chart shows GBP/USD daily price action with the 200-day exponential moving average drawn. This level can sometimes act as a target for traders and those who are active in the market.
While below here, there will be a notion that GBP/USD is in a longer-running downtrend. A move above here would ignite the belief that the GBP/USD rally of H1 2025 is resuming.
This is a distinct possibility if U.S. data comes in below expectations in the coming weeks and raise the odds of a series of Fed rate cuts.
