- The Pound Sterling recovers to near 1.3350 against the US Dollar as investors expect the Fed to cut interest rates by 50 bps in November.
- Investors await the Fed Powell’s speech on Thursday and the PCE inflation data for August on Friday.
- The BoE is expected to follow a shallow monetary policy-easing cycle.
The Pound Sterling (GBP) rebounds slightly from the key support near 1.3300 against the US Dollar (USD) in Thursday’s London session after correcting sharply on Wednesday. The GBP/USD finds cushion as investors have broadly underpinned the Pound Sterling against the Greenback due to firm speculation that the Federal Reserve’s (Fed) policy-easing cycle would be deeper and faster than the one to be followed by the Bank of England (BoE) in the remainder of the year.
According to the CME FedWatch tool, the central bank is expected to reduce its key borrowing rates further by 75 basis points (bps) in the remaining two meetings this year, suggesting that there will be one 50 bps and one 25 bps rate cut. 30-day Federal fund futures pricing data shows that the probability of the Fed reducing interest rates by a larger-than-usual margin in November has increased to 61% from 39% a week ago.
For fresh interest rate cues, investors will focus on speeches from various Fed policymakers, including Chair Jerome Powell, scheduled in the North American session. Last week, in the press conference after the monetary policy decision of the 50 bps interest rate cut, Powell emphasized remaining data-dependent for further policy action.
On the economic front, market participants await the United States (US) Personal Consumption Expenditure Price Index (PCE) data for August, which will be published on Friday. Signs of further slowdown in inflationary pressures would prompt market expectations of a Fed 50 bps interest rate cut, while hot figures would weaken them.
Daily digest market movers: Pound Sterling trades with caution against its major peers
- The Pound Sterling trades cautiously against its major peers on Thursday due to the absence of top-tier United Kingdom (UK) economic data. Therefore, the British currency is expected to be influenced by the market sentiment and expectations for the BoE interest rate outlook.
- The market mood appears to be favorable for risk-perceived assets due to China’s massive stimulus and growing expectation of additional larger-than-usual interest rate cuts by the Fed. S&P 500 futures have posted significant gains in the European session, exhibiting a strong risk appetite of investors.
- Meanwhile, the BoE is projected to deliver one interest rate cut in any of its two policy meetings remaining this year. The BoE’s policy-easing cycle appears to be shallower than that of other central banks as policymakers remain concerned over price pressures remaining persistent due to high inflation in the service sector. Annual service inflation, which is closely tracked by BoE officials, rose sharply to 5.6% in August from 5.2% in July.
Technical Analysis: Pound Sterling remains above 20-day EMA
The Pound Sterling edges higher at around 1.3345 in European trading hours against the US Dollar after correcting to near 1.3300 on Wednesday. The GBP/USD pair faced some selling pressure after posting a fresh more-than-two-year high at 1.3430. The near-term outlook of the Cable remains firm as the 20-day Exponential Moving Average (EMA) near 1.3216 is sloping higher.
Earlier in September, the Cable strengthened after recovering from a corrective move to near the trendline plotted from the December 28, 2023, high of 1.2828, from where it delivered a sharp increase after a breakout on August 21.
The 14-day Relative Strength Index (RSI) shifts above 60.00, suggesting an active bullish momentum.
Looking up, the Cable will face resistance near the psychological level of 1.3500. On the downside, the psychological level of 1.3000 emerges as crucial support.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Source: https://www.fxstreet.com/news/pound-sterling-moves-higher-against-us-dollar-ahead-of-fed-powells-speech-202409260825