Pound Sterling has lost its 100-day average and now sits on the shelf it has to hold before the Budget.
The Pound to Euro exchange rate looks increasingly exposed to further declines, with sterling losing a major support level as the Budget approaches.
GBP/EUR trades at 1.1632, below the 100-day moving average at 1.1639, the first technical level to give way this month.
The narrowing UK rate advantage over the Eurozone and the fiscal squeeze ahead of the 28 October Budget leave the pound short of reasons to recover in the near term.
That leaves the pair on the horizontal shelf at 1.1631, formed by the lows of early September and defended twice this month.
A close below it opens 1.1600, with the uptrend line running up from the June lows offering the next support near 1.1580.
Momentum has not confirmed the move, with the RSI flat, though the downside risks are building.
A recovery needs 1.1648 to come back into play, above which 1.1700 and the July high at 1.1750 are the next objectives.
UK business activity fell to a three-month low in September while the Eurozone reached a three-year high.
Falling oil prices through the week also removed some of the inflation pressure that supports the case for a Bank of England hike in November, though Brent rebounded 3.9% to $103 a barrel on Wednesday.
Markets price over four Bank of England hikes by this time next year, while Commonwealth Bank of Australia expects one in November and looks for that pricing to unwind.
Bank of England policymakers Swati Dhingra and Sarah Breeden speak at 10:30am and 2:30pm London time, with Governor Andrew Bailey following on Friday.
Budget Could Force Fiscal Austerity Warns Soc Gen
A leading analyst meanwhile warns that fundamental pressures are building against sterling. "The key event in the coming weeks is really the Budget," says Kit Juckes, FX Strategist at Societe Generale.
"Fiscal austerity in the UK could cast doubt about the UK outlook. With UK rates already 125bp higher than in the Eurozone, there is less urgency about further Bank of England tightening, but a narrowing rate differential and concerns about tighter fiscal policy suggest that if we are going to see a sterling wobble, it is likely to come this autumn," he adds.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistChancellor John Healey delivers the Budget on 28 October.
Ahead of risks associated with the budget, Deutsche Bank recommended selling the pound this week against a basket including the euro, citing the disappearance of the risk premium around UK fiscal policy.
On the euro side, markets price around a 50% chance of an ECB hike in October, with a December increase more than fully priced.
ECB board member Isabel Schnabel and Chief Economist Philip Lane both speak today, alongside the German IFO survey.
With five weeks to the Budget and the rate differential narrowing, the 1.1631 shelf is what stands between the pound and a test of 1.1600.
