Pound below its high: What will the UK Budget and Fed decision bring?

• GBP/USD slips to just below 1.3350, retreating from its five-week peak reached on October 22.
• Dollar buying ahead of the Fed weighs on GBP/USD, while the Pound remains unchanged against the Euro.
• Wednesday brings Chancellor Healey's Budget, followed by US PCE data on Thursday.

Dollar buying ahead of Wednesday's Federal Open Market Committee (FOMC) decision drove GBP/USD lower on Monday, while the Pound held steady against the Euro. Having spent three sessions above 1.3350, the pair slipped below that mark to its weakest level since the October 20 jobs data and finished just under it.

Ahead of the Fed decision, traders unwound some of their bets against the Dollar by buying it back. The central bank is expected to keep rates unchanged following September's increase. With EUR/USD declining by almost the same amount as GBP/USD, EUR/GBP remained flat, indicating that the entire GBP/USD move was driven by the Dollar.

According to The Times, Chancellor Healey intends to increase the minimum wage for over-21s by about 3.9% to around £13.20. This exceeds the 3.7% growth in pay excluding bonuses by two-tenths, with the latter figure central to the argument for a Bank of England (BoE) rate increase on November 5. The next two five-minute bars showed gains in GBP/USD.

Which events are on the calendar?

Wednesday's first Budget from Chancellor Healey will be accompanied by the Debt Management Office's gilt sales plan. The announcements come eight days ahead of the BoE's November 5 decision, for which traders have almost fully priced in a quarter-point increase in the UK's Bank Rate from 3.75%.

Futures indicate a probability of nearly 90% that the Fed will leave rates at 3.75%-4.00% when it announces its decision on Wednesday at 18:00 GMT, while the probability of a December increase is close to 80%. Thursday at 12:30 GMT brings both the initial estimate of US third-quarter Gross Domestic Product (GDP) and September's Personal Consumption Expenditures Price Index (PCE). Each release will help shape expectations for December.

What do the charts indicate?

GBP/USD moved back below its 50-day Exponential Moving Average (EMA) during Monday's decline. Its October 22 peak, just above 1.3400, had coincided with a test of the 200-day EMA at roughly that level. The subsequent retreat amounts to about a third of the advance from the October 14 low near 1.3150, while daily momentum is easing from overbought levels.

Daily chart: GBP/USD