The British pound (GBP) continued its decline against the US dollar (USD) during Wednesday's Asian session, falling to around 1.3230. The main reason for the pound's weakness was that the latest data from the British Retail Consortium (BRC) showed that food prices in the UK fell at the fastest rate in nearly five years, indicating that inflationary pressures continued to ease.

This trend has strengthened market expectations that the Bank of England (BoE) will cut interest rates in December. Market estimates suggest traders currently see a roughly 68% probability of a 25 basis point rate cut by the BoE before the end of the year.

Meanwhile, the outlook for the UK's fiscal situation further weighed on the pound. The Office for Budget Responsibility (OBR) plans to lower its productivity growth forecast by about 0.3 percentage points, which is expected to widen the fiscal gap by about £20 billion.

The adjustment has heightened investor concerns about Chancellor of the Exchequer Rachel Reeves's upcoming budget in November, with the market generally believing that there could be a funding gap of up to 35 billion pounds.

However, further declines in the pound are limited by the weakness of the U.S. dollar. The Federal Reserve will announce its policy decision in the early hours of Thursday Beijing time, and the market generally expects another 25 basis point interest rate cut, lowering the federal funds rate target range to 3.75%-4.00%.

According to the CME FedWatch tool, the market has essentially priced in an October rate cut by the Federal Reserve, with a 91% probability of another rate cut in December. Market observers note that investors will be closely watching speeches by Federal Reserve Chairman Jerome Powell to gauge the pace of rate cuts over the next two meetings.

According to the latest CNBC Federal Reserve survey, most respondents expect the Federal Reserve to cut interest rates twice this year to address the dual pressures of slowing economic growth and a weakening labor market.

From a daily chart perspective, the GBP/USD pair is currently in a short-term downward channel. The exchange rate is finding resistance around 1.3300, while support lies at the psychological level of 1.3200. A break below this support could lead to further testing of the 1.3150 and 1.3080 areas.

Conversely, if the exchange rate can regain its footing above 1.3330, it could reverse its weakness and target the 1.3400 area. The MACD indicator shows increasing bearish momentum, but the RSI is approaching oversold territory, suggesting a possible short-term technical rebound.

Editor's Note:

The current exchange rate of the pound against the dollar reflects market concerns about weak UK economic growth and declining inflation. Although expectations of a BoE rate cut are putting downward pressure on the pound in the short term, if the Federal Reserve's easing pace is faster than the Bank of England's, the pound may see a phased rebound in the medium term. The key to its future trend lies in whether the November budget can alleviate the pressure of the fiscal deficit, and Powell's remarks at this meeting regarding the future path of monetary easing.