GBP/USD fell again for a second session and is now trading around 1.3250 in the Asian session on Wednesday morning. The pound weakened after data from the British Retail Consortium (BRC) showed food prices in the UK fell at the fastest rate in almost five years. This decline in price pressures has made the market increasingly confident that the Bank of England (BoE) will cut interest rates. Traders now estimate there is a 68% chance the BoE will cut interest rates by 0.25% in December.

Expectations of BoE easing are growing due to problems in the UK economy itself. The Office for Budget Responsibility (OBR) is said to be lowering its productivity projections by around 0.3 percentage points. This means the UK economy is predicted to grow weaker, and the fiscal deficit could widen by almost £20 billion. This puts significant pressure on Chancellor Rachel Reeves ahead of the November budget, with a potential fiscal hole of up to £35 billion. This situation gives the BoE a reason to ease, but makes the pound appear even more fragile. However, the GBP/USD's weakening has so far been contained because the US dollar itself isn't particularly strong. The market is awaiting the Fed's decision, which will be released today. The Fed is expected to lower its benchmark interest rate by another 0.25 percentage points to a range of 3.75%–4.00%, and the market has even priced in the possibility of another cut in December, up to 91%. Traders' focus now isn't just on today's rate cut, but on Jerome Powell's tone: how aggressively the Fed intends to continue lowering interest rates in the next two meetings. If Powell sounds dovish, the USD could weaken, giving GBP/USD a break. (az)

Source: Newsmaker.id