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The pound is desperately holding onto a major support line.
The pound to dollar exchange rate (GBP/USD) has its hands clenched to a major horizontal support bar at 1.3140; it must hold onto it if it is to arrest a recent spell of weakness.
The support bar runs back to May when a selloff at the time was arrested, it then proved its worth again in August as it arrested a month-long decline.
Interestingly, this is the 38.2% Fibonacci retracement level of the big rally that ran from late 2025 into the first quarter of 2025, from 1.21 to 1.3788.
We're in a similar multi-week downcycle, and if support at 1.3140 can hold, then the contours of the next upcycle become visible:
However, if support breaks, Sterling holders need to be prepared for a more serious breakdown that opens the door to 1.2943, which would be the 50% fib retracement ahead of the 61.8% retracement at 1.2744.
The pound has been under broad pressure since September owing to the chronic uncertainty pertaining to this month's budget announcement, as well as steadily rising odds of an interest rate cut at the Bank of England before the end of 2025.
The question of interest rates comes to a head on Thursday when the Bank delivers the final Monetary Policy Report (MPR) of the year.
The previous three MPRs have accompanied a rate cut, but this one could be different, as the Bank could opt to leave rates unchanged owing to the UK's still-high inflation levels.
A hold would be supportive of pound sterling, all else equal. But, and here is the crucial point for readers to take away this Monday: if the Bank skips a cut this week, it'll almost certainly cut in December.
So what happens on Thursday isn't necessarily the game-changer for forex markets that it would appear to be at first glance, as the direction of travel points to one more cut before the year's end.
On this basis, we think the recent recalibration in interest rate expectations has already taken its toll on the pound and is why we see reduced downside risks into Thursday and enhanced relief-rally risks: the forward-looking marketplace has adjusted to what's coming and the pound is weaker as a result.
In fact, we wouldn't be surprised to see some buying happening ahead of the decision as a "buy the fact" mentality takes hold.
As the pound comes under broad selling pressure, the dollar comes under broad buying pressure: a detente in China-U.S. trade tensions nominally supports the dollar as investors fade fears of negative impacts to the U.S. economy from tariffs.
Also, the Federal Reserve has made clear it's not on a preset path to cutting interest rates, which draws questions on expectations for an aggressive rate cutting cycle at the Fed, supporting U.S. short-term bond yields, and the dollar.
The week ahead would normally be an important one in terms of data as the first Friday of the new month is traditionally set aside for the all-important U.S. jobs report.
But because U.S. politicians appear happy to let the current partial shutdown of U.S. government agencies continue, we won't be receiving any official statistics this week.
This means private sector reports must assume the mantle. With this in mind, we await the U.S. ISM's PMI surveys of the U.S. economy's private sector in October.
The surveys were indicating the economy was close to stalling in September, and further confirmation of this will likely bolster the odds of further Fed rate cuts, which would hurt the dollar.
However, any signs of a pickup would likely keep the Fed on the sidelines and bolster the dollar.
The manufacturing PMI is due Tuesday (consensus expects 49.2) and the services PMI due on Thursday (the consensus expects 51.0).
"Within the report, particular attention will be paid to employment indicators, which could signal further labour market weakness, and price components, which remain elevated and will be closely watched for signs of moderation," says a preview note from Lloyds Bank.
Any moderation in the data can help GBP/USD arrest its selloff and potentially etch out the contours of a rebound.