On Thursday, November 6, the Bank of England will hold its next monetary policy meeting. Currently, markets are pricing in only about a 30% chance of a 25-basis-point rate cut to 3.75%, but as the meeting approaches, expectations for a cut are becoming more pronounced.

The decline in consumer inflation supports the prospect of a rate cut, as it was recorded at 3.8% in September, below the Bank of England's forecast of 4%. The reduction in inflation was due to slower price growth in the services sector.

Another important factor influencing the decision-making process will be the labor market. Job losses accelerated by 10,000 in September, and the previous two months were revised downward, indicating a rising risk of an economic slowdown that leans toward a rate cut.

It's also necessary to consider that the Labour government's push for fiscal tightening contributes to economic slowdown, thus supporting the case for lowering the rate.

Therefore, even though the market currently anticipates that the rate will remain unchanged, factors favoring a rate cut are becoming increasingly significant. Thus, a surprise leading not only to a rate cut on Thursday but also to a reaction from the pound in the form of a decline is not ruled out. If the rate remains at the current level, the likelihood of the pound rising is minimal.

The dollar began the week strongly amid concerns that the Federal Reserve would lower rates more slowly than previously anticipated. Hawkish comments from some FOMC members on the lack of need for a December rate cut prepare the market for a pause in rate cuts. However, these concerns may be unwarranted, as the signs of a slowing US economy are becoming more pronounced. The ISM manufacturing index in October fell from an expected increase to a drop from 49.1 to 48.7 points, and US Treasury Secretary Scott Bessent made an unexpected statement on Monday that some sectors of the US economy are in recession. According to him, consumer spending is declining, which is also an indirect sign that a recession is approaching.

In recent months, there has been a belief that a significant influx of investment into the US stock market indicates healthy economic growth. The irony is that investments are primarily flowing into shares of companies associated with the adoption of artificial intelligence technology, with the combined market capitalization of the top seven tech companies exceeding 35% of the entire S&P 500 index. If AI is excluded from consideration, the picture becomes much less rosy, resembling stagnation.

If the market acknowledges the threat of a correction in the US stock market and the risk of recession, the Fed will be forced to cut rates more aggressively, putting pressure on the dollar, and giving the pound a chance to resume its upward trend. But until that happens, the pound remains weak, and its continued decline appears justified.

The calculated price is moving deep downward, but it is worth noting that in the absence of CFTC data, the calculation is incomplete.

Last week, we identified support at 1.3140 as a target; the pound has since fallen even lower, and currently, there are no signs of a reversal upward. The most obvious strategy is to hold short positions; any attempts at rising are justified for selling, with a potential upward retracement limited to the resistance zone of 1.3210/30. We see a broad range of 1.2940/3010 as a possible target.